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After the debt deal: A tax reform idea

The debt deal punts on tax reform. That's unfortunate. But when lawmakers finally get to it, this idea can garner bipartisan support and save the government serious money: Have the IRS fill out tax returns for millions of taxpayers. It's a proven concept in Scandinavia -- and California.

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The IRS would determine eligibility for EZTax returns based on the prior year’s return and would prepare a “draft” 1040. It would notify the taxpayer of his or her eligibility and establish a secure online mechanism for the taxpayer to review it or, alternatively, an appropriate mailing address for the return to be sent.The taxpayer would then review the return and either agree to the content and file it; make appropriate changes and file; or toss it in the trash can and start from scratch.

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Participation would be voluntary

The EZTax process would be entirely voluntary. Those skeptics who don’t trust the IRS will simply decline to participate. They may even test the agency to “get it wrong” with an error favoring the taxpayer.

But many view California’s tax administration system as in the forefront, and the state has had good results with its Ready Return program. More than 97 percent of those who use the system report a “satisfied” or “very satisfied” experience, and say they will continue to use it. California also reports the cost of processing paper-filed returns is close to 10 times that of a Ready Return ($2.59 vs. $.34).

The high usage of the TAR system in the Scandinavian countries is a direct result of tax systems considerably simpler than America’s, and taxpayer compliance costs are estimated at 1 percent of revenues collected compared to 10 percent in the United States. Again, real tax reform in the form of simplification of the code by Congress would likely yield greatly reduced compliance costs.

Common ground and common sense

The Obama administration has not been silent on this idea. Back in September 2007 while on the campaign stump, then Sen. Obama advocated a “Tax Fairness” plan that included a “five minute return” – virtually the same as that described here.

Additionally, the president’s outgoing main economic adviser, Austan Goolsbee, is a passionate supporter of the concept. Mr. Goolsbee reckons that an EZTax type of return system would save taxpayers $2 billion a year in preparation fees, not to mention millions of hours of time.

Clearly here is one of those campaign promises that deserves some presidential heft, for it should be one on which Mr. Obama can garner bipartisan support. This is because the EZTax concept is likely to be one of those rare ideas where mainstream Republicans and even tea party hardliners would not mind seeing a little more proactive government – especially where that added bureaucracy reduces overall costs.

John Klotsche is a retired partner and former chairman of the executive committee of the international law firm Baker & McKenzie. He served as senior advisor to the IRS Commissioner from 2003-2008. He lives in Santa Barbara Calif., and writes fiction and nonfiction short stories.


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