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What’s more fun than your filing taxes? How about going to the DMV? Or reporting for jury duty? Virtually every interaction we have with our government is worse than a dentist appointment, but what if filing taxes didn’t have to be? According to Joseph Bankman, professor of Law and Business, there’s a genius way to eliminate the hassle of dealing with taxes.

ReadyReturn Tax Solution

Joseph Bankman, a graduate of Berkeley and Yale, is a lawyer and clinical psychologist who teaches at Stanford University. He leads courses on mental health law and has written about how understanding social psychology can reduce tax evasion. His extensive background is what first lead him to question the process of filing taxes.

Imagine if your tax return only had three simple steps:

  1. Review your return
  2. Make any changes
  3. Sign and return

That’s the idea behind the State of California’s ReadyReturn program, which Bankman became an advocate for. In 2004, the FTB wanted to give California residents a tax return that had the government estimate their tax liability. Because the government already has resident information on file, such as income and the amount withheld from paychecks, residents could simply review the pre-filled out form and sign it, or forward it to a preparer.

In fact, the ReadyReturn process is similar to how many other nations handle their taxes. In certain parts of Asia and Europe, filing taxes is as simple as signing a form and mailing it in. There are no W-2s, no 1040s, and no accountants to deal with. Some countries don’t even stress about tax day deadlines. However, in the United States, citizens spend billions of dollars and 6 billion hours every year filing taxes.

Bankman compares the way the U.S. handles taxes to a credit card company sending you a blank statement.

“VISA doesn’t send you a blank piece of paper each month, asking you to write down all your purchases, add them up, and fine you if you get things wrong. Why should we allow the government to do that?”

Joseph Bankman

Joseph Bankman Shakes Up Congress

After conceiving the idea, Bankman and his team sent ReadyReturn forms to an estimated 11,000 California residents during the 2004 tax season. A survey was attached to the form, asking tax payers if they would be willing to use the same form again the following year. An overwhelming 99% of users answered yes, commending ReadyReturn for the quick and easy process. Bankman strongly believes this type of convenient service would greatly improve the relationship between the U.S. government and citizens.

“Taxes make most of the 160 million filers feel anxious and inadequate. Ask yourself the following question: how much would you pay, in addition to what you now pay in tax and for tax preparation, to never, ever have to worry about the hassle of filing unless you wanted to? Many people would pay hundreds of dollars or more.

“Most of the hassle of filing comes from finding all the information the forms require. If you could start with the information already there, on the right line of the return, everything would be easier.”

Joseph Bankman

Fueled with the outstanding positive feedback, Bankman began meeting with California legislators about implementing this ingenious idea into Congress. However, that’s when he hit a wall. Intuit, the company that runs TurboTax, heard about ReadyReturn and also began meeting with politicians and giving out money to various causes in an attempt to shut the idea down. The reason is, if ReadyReturn could make filing taxes easy and convenient for everyone, then no one would have to hire accountants to handle their taxes. Namely, TurboTax and H&R Block would be out billions of dollars.

Bankman hired a lobbyist to help him meet with politicians but still found it very difficult to have Republicans back his idea. Grover Norquist, President of Americans for Tax Reform, is a lead advocator for lower taxes. Norquist believes that if the government has permission to send citizens a bill, then it opens the opportunity to slip in hidden fees. Since most people are unwilling to contest against the IRS, having citizens unknowingly sign forms would be an easy way to raise taxes. Bankman, however, assures this would not be the case if ReadyReturn were to go into effect.

“The IRS collects all sorts of data on us now. It gets our wages from our employer, our interest income from our bank, our mortgage payments from our lender and so on. The IRS uses that data to figure our taxes. If our employer tells the IRS we made 40,000 and we say we made 30,000, the IRS believes the employer and sends us a notice of deficiency, saying we owe more tax — plus interest and penalty.

Proposals like ReadyReturn, which require the IRS to send you a tentative return with the numbers it is going to use on it, let us know what numbers the government will use. It protects us from the government using the wrong number without us knowing it. Folks who are suspicious of the government should support the proposal.”

Joseph Bankman

During his meetings with legislators, Bankman learned there was another reason they were reluctant to back ReadyReturn. Legislators want people to hate filing taxes because then it gives citizens incentive to vote against them. Despite all these hurdles, Bankman gained some traction in Congress and was only one vote away from having ReadyReturn passed when one legislator changed his mind at the last minute.

The Next Step

Man reading tax documents at desk
Man reading tax documents at desk

Although ReadyReturn did not make it through Congress, a version of it is still available on the state of California’s website. In 2016, Elizabeth Warren introduced the Tax Simplification Act of 2017 — a bill inspired by the FTB’s idea. Even though the bill did not pass, it proves that we are drawing closer to a simpler tax filing process. According to Bankman, if ReadyReturn were to go into effect, U.S. citizens would pay less in taxes for two reasons:

“First, millions of taxpayers have refunds coming and don’t file because the process is too daunting. There are billions in unclaimed earned income tax credit alone. Making filing easier will increase filing, and many of these taxpayers will get the refunds they deserve.

“Second, knowing the figures the government [uses] will lead to some increase in underpayment. The reason for this is taxpayers will not correct government errors or put in “missing” amounts. The increase in underpayment is likely to be small. In general, taxpayers who cheat know what the government already knows.”

Joseph Bankman

We may still be years away from seeing a simpler tax filing system, however. Due to the annual appropriations bill, the IRS is prohibited from sending “pre-populated returns to taxpayers“. This means the government cannot send pre-filled out forms, like the ReadyReturn proposal, to U.S. citizens. Still, Bankman remains hopeful that we will one day see a simpler tax filing system and the results would be greatly beneficial.

What do you think about the ReadyReturn tax proposal? Let us know down in the comments.