For Immediate Release
Media Contact: [email protected]
March 2, 2022
Washington, DC – Center Forward today released a comprehensive analysis of the potential benefits and costs of adopting a “return free” tax filing system in the United States. The study was initiated and underwritten by Center Forward and conducted by PricewaterhouseCoopers (PwC) as part of Center Forward’s continuing effort to provide quality, unbiased information to members of Congress of both sides of the aisle as they work to improve tax administration in the United States.
Key findings of the study include:
- Proponents of return-free filing system in the United States have estimated billions of dollars of annual gross benefits (i.e., before consideration of any offsetting costs), measured as the reduction in compliance costs to participating taxpayers and lower costs of processing prepopulated returns relative to the cost of processing current tax returns for the tax administrator. However, research suggests the benefits to taxpayers and tax administrators likely have been overstated due to reductions in the underlying compliance burden and failure to account for reasonable participation rates.
- Costs would certainly be redistributed under such a system from some taxpayer activities (such as filing of tax returns) to other taxpayer activities (such as filing of information reports with employers); from some tax administrator activities (such as processing tax returns) to other tax administrator activities (such as preparing tax returns); and from taxpayers and tax administrators to third parties as reporters and withholding agents. It is less clear that overall costs would decline or that the net benefits of such a system are positive. There are also certain to be new additional costs with such a system.
- Most countries that have a return-free filing system have far simpler tax systems than the United States has. The Treasury Department concluded that simplification is a prerequisite for adoption. Further simplification of the tax code may provide benefits to taxpayers similar to those that would be provided by return-free filing and at the same time reduces the scope for any incremental benefit from implementation of a return-free filing system.
- Because some compliance costs are eliminated, some increase, and some are shifted to other parties, a return-free system may reduce, not change, or even increase total compliance and administrative costs. If taxpayers most likely to participate in a return-free system have the lowest compliance burdens while the taxpayers with the most complex circumstances, for whom a return-free system is not likely to be an option, bear the largest compliance burdens, then reductions in compliance costs are likely to be limited.
- Prevalence of self-employment income, above-the-line deductions, itemized deductions, and complexity generally limit eligibility for a return-free filing system. A desire to treat the household – rather than the individual – as the appropriate unit of taxation also presents challenges for a return-free filing system.
- Concerns about privacy and delays in receiving refunds are expected to cause many otherwise eligible taxpayers to decline to participate in a return-free filing system.
- Substantial changes to the timing of when employers and financial institutions and others deliver reports to the IRS would be necessary to allow for proper processing of taxpayer information. Even under relatively optimistic assumptions about when information could be made available, many taxpayers would have to wait longer than under the present system to satisfy their obligations and receive any refunds due. These costs may lead some eligible taxpayers to elect not to participate. The costs borne by taxpayers who do elect to participate in the system, for example, in terms of delayed refunds reduce any net benefits.
READ THE FULL REPORT HERE.
Center Forward brings together members of congress, not-for-profits, academic experts, trade associations, corporations and unions to put aside the partisan bickering that has gridlocked Washington and find common ground. Center Forward gives centrist allies the information they need to craft common sense solutions to the serious issues facing the country, and provide those allies the support they need to turn those ideas into results.