H&R Block's entire business model is premised on taxes being confusing and hard to file. So, naturally, the tax preparation company has become — along with Intuit, the company behind TurboTax — one of the loudest voices on Capitol Hill arguing against measures that make it easier to pay taxes. For example, the Obama administration has pushed for automatic tax filing, in which the IRS uses income information it already has to fill out your tax return for you. That would save millions of Americans considerable time and energy every year, but the idea has gone nowhere. The main reason? Lobbying from H&R Block and Intuit.
But H&R Block's latest lobbying effort is even more loathsome than its opposition to automatic filing. At the company's instigation, the Senate Appropriations Committee has passed a funding bill covering the IRS whose accompanying report instructs the agency to at least quadruple the length of the form that taxpayers fill out to get the Earned Income Tax Credit.
The EITC is awesome, and this makes it harder to get
It is hard to adequately express how despicable this is. The EITC is one of America's premier anti-poverty programs. It targets poor families specifically, and because you have to work to get it, countless studies have found it encourages single mothers and other people without much connection to the labor market to enter the workforce. The Census Bureau estimates that it and the related Child Tax Credit keep 9.4 million people out of poverty every year, and recent research suggests that when you take into account the people the EITC brings into the workforce, the real number is probably twice that. If that weren't enough, it also boosts test scores for kids in families receiving it and improves both parents' and children's health.
The EITC is awesome.
But because it offers refunds for people who otherwise don't make enough to file taxes, the EITC expands the market for parasitic tax prep companies like H&R Block and Intuit. Currently, recipients only have to fill out a single-page form, and the IRS operates free tax preparation centers for low-income people having trouble completing their returns. But that hasn't stopped commercial tax preparers from swooping in, and currently two-thirds of EITC claimants pay to have their returns prepared. Commercial preparers charge hundreds of dollars in fees, so a huge chunk of EITC benefits are going to these useless garbage companies, rather than to actual poor people. Preparers also used to offer high-interest "refund anticipation loans," which were even more costly; regulators have pushed those out of existence, but similar "refund anticipation checks" remain.
But this apparently doesn't exploit the poor enough for H&R Block's taste, so they pushed hard to expand Schedule EIC, the form that EITC recipients fill out, from one page to four or five. The proposal, included in the recently passed Senate Appropriations bill, adds a battery of questions regarding eligibility ("Is the taxpayer's investment income more than $3,350?"; "Is the taxpayer's filing status married filing jointly?") currently included in a form that tax preparers have to fill out. The idea is to force tax preparers to double-check their work; most EITC errors are the fault of incompetent tax preparers, not individuals. But adding the questions to the individual return makes no sense, as they're already answered elsewhere. The return will obviously already state if the taxpayer is married filing jointly, for instance.
There is no good policy rationale for this change. H&R Block CEO William C. Cobb has attempted to justify it as a way to reduce improper payments, but there's little reason to think it would have that effect. Again, taxpayers already have to supply all this information, and the real misreporting problem is from paid preparers like H&R Block, not individuals. A recent IRS study found EITC-claiming returns from paid preparers were more likely to result in overpayments than self-filed returns. That's right: People who fill out taxes for a living are, on average, worse at it than taxpayers who do it themselves (and, by the way, the IRS's volunteers do a better job than anybody).
The only possible reason to change the form, then, is to confuse taxpayers enough that even more of them will pay companies like H&R Block to prepare their returns.
Other low-income families will just not bother to claim the credit at all if this policy takes effect. "Were this directive implemented," Robert Greenstein of the Center on Budget and Policy Priorities writes in a piece decrying the proposed change, "no one should be surprised to see large numbers of individuals who now file their own returns either giving up and not claiming the EITC due to the added complexity or turning to paid preparers, who could charge hundreds of dollars for their services."
It's not just the EITC, either
Worse, Greenstein notes that the language also instructs the IRS to add similar questions to forms for the refundable part of the Child Tax Credit, the American Opportunity Tax Credit for college tuition and fees, and the Premium Tax Credit that subsidizes Obamacare plans.
Think about what tax breaks are being targeted here. These are all refundable credits, which, with the exception of the college credit, overwhelmingly help low-income and working-class people. H&R Block is not pushing to make the mortgage interest deduction more complicated, or to make the charitable deduction more confusing. Tax breaks that mostly help rich people go untouched. H&R Block knows that rich people already use TurboTax or hire accountants; because it wants new business, it has decided to prey upon the poor.
In a better world, companies like H&R Block wouldn't exist, because the IRS would fill out returns itself. But if H&R Block must exist, the least it can do is not try to actively harm poor people. Sadly, even that appears to be asking too much.
Update: H&R Block, after not returning requests for comment before this article was published, has responded here. They essentially recapitulate Cobb's nonsensical arguments about this change somehow reducing improper payments, even though individual tax preparers are less likely to make errors than professional ones.
Their post does, however, include two hilarious jokes: when they insist that their lobbying for the change is "not about competitive business interests," and when they try to defend the change by noting that it was proposed by the IRS-Software Developer’s Working Group, which H&R Block explains is "composed of the IRS and several members of the tax preparation industry."
Isn't it amazing that a working group that includes multiple representatives of commercial tax preparers proposed a rule that would increase business for commercial tax preparers? Democracy is magical.