Source image: Julio Ricco / Shutterstock.com
Tax Day 2022 is almost here, so it seems like a good time to talk about one of my least favorite corporations: Intuit, the makers of Turbotax, the now ubiquitous electronic tax payment software.
A couple of weeks ago, the Federal Trade Commission — which enforces federal antitrust and consumer protection law — sued Intuit for deceptively marketing its tax filing software as free when, for most people, it is most decidedly not. This is an important step for both tax fairness and government accountability, and points to much larger issues with our tax system, as I’ll outline below.
“TurboTax is bombarding consumers with ads for ‘free’ tax filing services, and then hitting them with charges when it’s time to file,” said Samuel Levine, director of the Bureau of Consumer Protection at the FTC. “We are asking a court to immediately halt this bait-and-switch, and to protect taxpayers at the peak of filing season.” The suit paid some immediate dividends, with Intuit agreeing to pull down television ads that described its product as “free, free, free, free.”
There’s quite a bit of history leading to the current battle over whether or not Turbotax is or is not free. I went through a bunch of it last year for a piece in Mic, but for a quick overview: In order to head off the creation of a national, public tax filing system, tax prep corporations like Intuit and H&R Block banded together during the George W. Bush administration to cut what turned out to be a very corrupt bargain with the IRS, creating what’s known as the “Free File” program. In return for the IRS not creating its own filing software, the tax prep corporations agreed to allow a certain percentage of the U.S. population to file for free using their private software. An income cap was later added to the qualifying conditions, which currently sits at $73,000.
Since then, as PropPublica has extensively documented, Intuit has gone to great lengths to ensure that, while its truly free filing services exist, most folks can’t find them or use them. Indeed, evidence the FTC included in its complaint showed Intuit intentionally confused users, by, for example, calling its free and paid products by similar names to trick people into using the latter. It also engaged in other chicanery, such as ensuring that its free products didn’t show up in searches on Google and other search engines, but that its paid products did.
Crucially, Intuit markets everything as “free, free, free,” but doesn’t disclose to users that they don’t actually “qualify” for the free product — because they have independent contracting income or something else slightly complicated, for instance — until they’re already well into the filing process, meaning they either have to start all over somewhere else or just suck it up and pay.
This fits in more broadly with the complete failure of the Free File program to actually facilitate free filing. In 2020, just 4 percent of eligible taxpayers ended up taking advantage of the program. A report from a Treasury Department inspector general found that 14 million Americans who were eligible for free filing paid about $1 billion to tax prep corporations in 2019, because they either didn’t know they qualified for the free version or were duped into using a paid one.
This is all, quite clearly, a mess.
I find the FTC’s suit really important for a couple of reasons: First, paying taxes is a civic duty and you shouldn’t be able to scam people for trying to do it, full stop. A government that can’t stop people from being duped while they pay their share for a functioning society isn’t one that is going to hold the faith of the population.
Contrary to popular belief, most Americans don’t mind paying taxes. (What they mind is the idea, real or imagined, that others are getting away without paying their fair share.) To trick people in order to make a few bucks off something everyone has to do so that we have a functioning society, and perhaps pushing them towards a more anti-tax sentiment due to their having been scammed, is wrong, and its government’s job to ensure that doesn’t happen.
But the suit also highlights the absurdity that is the very existence of the “Free File” program, and the pervasiveness of tax prep corporations more generally. Honestly, the current incarnation of Intuit shouldn’t even exist. The IRS already has the information it needs to send most people a simple return laying out what they owe for the year; much of the form-filling we all do to pay our taxes, on Turbotax or otherwise, is duplicative.
There are several plans out there, from liberals and conservatives alike, and there have been for decades, to create a simple, public filing system run by the IRS that would work for most taxpayers. Dozens of countries use such a system right now, and a California pilot program in 2005 and 2006 showed very promising numbers. This is something on which Elizabeth Warren and Ronald Reagan would agree.
Tax prep, then, should be a niche industry catering to filers with truly unique tax situations, not something millions upon millions of taxpayers use every year for the basics. And the industry knows it, consistently listing the possibility of a public filing system as one of its largest threats — and it lobbies accordingly, leaving us where we are today.
Yes, in order to move to a public filing system, the IRS would need a lot of new funding, and one of the easiest things to do in Washington is to grandstand against a bigger budget for the IRS. It’d also be nice if lawmakers stopped trying to engineer every policy preference through the tax code — which happens because then it can be framed as a “tax cut,” which is always popular — which lumps more and more work onto an IRS that already has enough to do.
But there’s some tiny reasons to hope things are moving in the right direction. The IRS recently stopped promising to not create a public competitor to the “Free File” program and Intuit and H&R Block pulled out of the program entirely. That may put pressure on Congress to create a truly free system, since the remaining “Free File” players are smaller ones with little name recognition, and the word of Intuit’s scammy ways is only going to spread further and wider.
Indeed, what really matters at the end of the day is that the U.S. is fully capable of making Tax Day way less miserable and simply hasn’t, letting tax prep corporations like Intuit run the show for far too long. The FTC’s case is a good start, but we can and must make mass reliance on Turbotax a thing of the past.
This post initially appeared in a slightly different form on the author’s Substack, Boondoggle., on April 6, 2022.
Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, the Boondoggle newsletter, and the director of state and local policy at the American Economic Liberties Project.