Image source: Pixabay.
If you're at all familiar with Elizabeth Warren, you know she's a senator with a keen interest in protecting consumers financially. She was the driving force behind the Consumer Financial Protection Bureau, a relatively new government agency that"works to make sure that consumers have the information they need to make the best financial decisions for themselves and their families." One of Warren's latest targets is our tax system, and if she has her way, many of us may be able to prepare and file our taxes ourselves, in just five minutes per year.
Before I explain any further, let's set the stage a bit. In case you haven't noticed (and I'm sure that's not the case), our current tax system is very complex -- and, many think, unnecessarily so. The National Taxpayer Advocate, in her 2012 annual report to Congress, noted that the tax code is close to four millionwords long and that individuals and businesses spend more than 6 billion hourseach year on tax preparation. About 59% of taxpayers end up paying professionals to prepare their tax returns for them, with another 30% using tax-prep software that is also typically not free. As of 2007, the median-income taxpayer spent $258on tax preparation, a not-insignificant sum.
The U.S. tax code is more than three times as long as the entire Harry Potter series, and more than four times as long as the Bible. Image source: KitviaFlickr.
There's a better wayYou might think the situation is mostly just inevitable, and perhaps you can't imagine anything better. Well, in many other countries, tax preparation is far simpler. The Atlantic magazine reviewed this issue in March, noting:
Elizabeth Warren. Image source: AFGEviaFlickr.
Simplification for the U.S.Senator Warren has introduced the Tax Simplification Act of 2016 bill, which would have the IRS automatically fill out tax forms for millions of taxpayers using the income reports they routinely receive from employers and financial institutions. Those who approve the pre-filled-out returns as correct could just indicate that and be done with it, paying what they owe or soon receiving their refund. The bill would also create a free online tax preparation and filing service for taxpayers (not unlike TurboTax, TaxAct, etc.) and would offer taxpayers access to information about their tax returns.
In arguing for this simplification of the tax-prep process, Warren noted, "This year, taxpayers will spend an average of 13 hours preparing and filing their returns, and will pay $200 for tax preparation services -- a cost equal to almost 10% of the average federal tax refund," Warrensaid in a statement. That's certainly eye-opening, that many of us are forking over 10% or more of our refunds just for tax preparation services.
Limits and oppositionThe proposal is exciting to many and would save millions of taxpayers a lot of time and money. It won't quite as useful to some, though. If you have capital gains to report, such as from stocks you sold, the proposed pre-filled tax return won't work. It's also not likely to work for the many people who itemize their taxes, claiming deductions for charitable contributions, medical expenses, and more. Still, many Americans have rather simple tax situations, collecting income just from a salary and not having deductions greater than the standard deduction. Warren has estimatedthat between 8 million and 60 million households may benefit greatly from this proposal, not having to prepare and file returns.
The proposal might seem like a terrific, slam-dunk idea to you, but some entities see it differently. Companies that specialize in tax-preparation, for example, such as H&R Blockand Intuit(which sells its TurboTax software), are passionately opposed to any tax simplification. After all, the more complex our tax code gets, the better it is for their business. A report prepared by Warren's staff notesthat, "as of 2016, just three large tax preparation companies, Intuit, H&R Block, and Jackson Hewitt, have spent nearly $41 million since 1998 on federal lobbying [against tax simplification and return-free filing]."
While some on the right who don't love Elizabeth Warren might also be skeptical about the proposal, they should know it's not exactly a new idea; even President Reagan supported the idea, supporting return-free filing in a 1985 speechon taxes.
If you like the Tax Simplification Act of 2016 bill, consider contacting your representatives in Congress and letting them know. You might want to follow the bill's progress, too -- especially if you're an investor in any tax-preparation companies.
The article Elizabeth Warren Wants Your Tax Return to Take 5 Minutes to Do originally appeared on Fool.com.
Longtime Fool specialistSelena Maranjian, whom you can follow on Twitter, owns no shares of any company mentioned in this article.The Motley Fool owns shares of and recommends Intuit. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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