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Law Prof. Simplifies Tax Returns

Publication Date: 
October 21, 2009
The Stanford Daily
Evelyn Kelley

Professor Joseph Bankman discusses ReadyReturn, his proposal for tax simplification, with the Stanford Daily:

Stanford Law Professor Joseph Bankman recently travelled to Washington, D.C. to present his proposal for tax simplification to the President’s Economic Recovery Advisory Board (PERAB).

Bankman is proposing the use of “ReadyReturn,” a service that simplifies tax returns by presenting users with a pre-filled tax return based on information from previous years. ReadyReturn has been available free of charge to eligible residents in the state of California since 2007, following an initial pilot program in 2004.

On Oct. 16, Bankman presented his program to the PERAB as a model for a possible national-level tax return process. While Obama had previously endorsed a similar plan by PERAB’s chief economist and staff director Austan Goolsbee, Bankman styled his program as a slightly more conservative approach that may have a higher chance of being enacted.

Bankman presented a variant of this program to the Bush Administration in 2005, but he hopes to find more support under the new leadership.

The program could reduce stress concerning taxes, not by simplifying the code but by providing a straightforward, immediate interaction with the government. According to Bankman, ReadyReturn uses information the government already has on file, thus preventing error and cutting down on the $30 billion that individual-wage earners spend per year filing their taxes, according to Bankman.

Users may still make changes to the ReadyReturn estimate, but user feedback has been positive.

Intuit, which manufactures the widely used tax software TurboTax, is a center of opposition. Their concerns focus on the possibility of mistakes that the IRS can make with some of the information.

Bankman, however, dismisses this criticism.

“The mistakes turn out to be awfully low and taxpayers really love the program,” he said. Between the years 2007 and 2008 the amount of users have quintupled.

But Mary Morrison, a financial aid officer, believes that although ReadyReturn simplifies the actual filing process, the program does not address the root of people’s anxiety.

“People have no comprehension of why certain amounts are taken from their pay,” she said. “They don’t know what W-2 forms are. They don’t know if and when they should file. This form won’t solve that.”

Besides difficulties with financial comprehension, Morrison also points out that the program may not be accessible to those who need it. Despite the prevalence of computers, many still lack access to the Internet and the ReadyReturn service, which is only available online.

But Bankman dismisses the concerns about accessibility.

“The digital divide is less a problem that one might have thought,” Bankman said. “Even in 2004, which is ages ago computer-wise, nearly half the eligible users filed online. In an ideal world, ReadyReturn might be paper based, too. But that is more expensive and less secure.”

Both Bankman and Morrison still agree that the federal tax code needs to be simplified.

For those that don’t trust the system, Bankman said, “ReadyReturn is even more important.”

“ReadyReturn tells you what the State already thinks you owe, based on information it has about your wages,” he added. “If you don’t trust the State, you’d want to know what they think ahead of time and not wait for them to send you an audit notice. If you find something in ReadyReturn that is wrong, you can spot it before you file.”

The format of ReadyReturn does not work for those with complex incomes. Ineligible wage-earners – including those who have multiple incomes sources or deductions – cannot use ReadyReturn, but Bankman is looking to expand accessibility with another program, “Data Retrieval.”

For those who cannot use ReadyReturn, Data Retrieval uses the same concept of drawing on government-stored information but without giving a full estimate. The planned program would add third-party reported sums to an incomplete tax return to nullify the anxiety of forgetting a transaction and the possible resulting fine.