Monday, April 11, 2005 - The Progress & Freedom Foundation Blog

Taxes are Too Easy?

The California Franchise Tax Board - the state version of the IRS - has invited 50,000 people to take part in a novel experiment. Called "Ready Return," the pilot project is designed to take the pain out of paying taxes. How? The state tells taxpayers how much they owe and it completes the necessary forms. According to the FTB, taxpayers are only required to double-check the information, sign the form and of course, pay the state.

If the pilot is successful, the FTB expects it could be expanded to as many as 3 million Californians. This is e-government run amuck.

The recent issue of Government Technology has a flattering article on Ready Return that ably describes the contours of the program and highlights concerns such as data security and the effects it would have on the private sector tax preparation market. NPR has a nice audio story on it as well complete with a quote from taxpayer advocate Grover Norquist. However, neither story asks a basic question about the limits of government. Where does convenience end and shifting the balance of power away from taxpayers begin?

Proponents sell the program as a way to get delinquents back onto the tax rolls. State Controller Steve Westly tells reporters that he interested in making California an "innovator." Surely, no one is against efforts to get more people to pay their taxes and more innovation in government is sorely needed. But is this the way to go? I think not. Significant problems are on the horizon for a program that explicitly targets a group of taxpayers who have "simpler" tax returns. These are the same people who tend to have lower tax obligations. I hear a chorus of
"preying on the poor" in the background. Beyond the scope and structure of the program, other important policy issues must be addressed such as security risks, liability and the ability to appeal.

Finally, the 80-20 rule should be applied more rigorously in Sacramento. This well known rule of thumb is borrowed from management. Roughly 80 percent of process improvements result from focusing on 20 percent of your problems. On its face, Westly and others behind the Return Return program appear to be adhering to the rule: as designed the program could reach about 21 percent of California tax returns. However, from the perspective of the tax administrators these are not the most problematic returns nor are they the returns that provide the highest revenues.

More likely, it looks like innovation for the sake of innovation. Unfortunately, if the program moves forward, the most significant costs will be extremely difficult to measure. Foremost among them, an erosion of civic responsibility and taxpayer protections.

posted by @ 2:00 PM | State Policy