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Brooks Wilson's Economics Blog: The Nanny State and Tax Returns

Thursday, January 7, 2010

The Nanny State and Tax Returns

The Obama administration does not believe that consumers are sufficiently wise to select tax preparers.  The Review & Outlook section of the Wall Street Journal reports and comments on the news in "H&R Blockheads."
We're guessing that when Americans think of outlaw industries, tax preparers aren't the first rogues that come to mind. But lo, the nation's green eyeshades are now destined to come under the regulatory rule of the Internal Revenue Service as part of the Obama Administration's latest revenue grab.

Under the plan, which would begin with the 2011 tax season, anyone who takes money to help people with their taxes will have to register with the IRS, and eventually pass competency tests and sign up for continuing education. So having made tax filing so complicated that most Americans need help with their forms, Washington now wants to raise the price of such counsel by regulating advisers in a way that may reduce their supply.
Defending the undefendable is a fools errand, but Commissioner Shulman is up to the task...
Defending the decision, IRS Commissioner Douglas Shulman declared that regulating tax preparers was reasonable because "In most states you need a license to cut someone's hair." Yes, the cosmetology guild does like to raise the barriers to entry for competitors.
Elaborating on the Journal's point, we do not need to license cosmetologist because we can and do readily view a bad haircut.  A bad cosmetologist would be out of business pronto.  Besides Commissioner Shulman, didn't your mother ever tell you that two wrongs don't make a right?

H&R Block likes the regulation.
Cheering the new regulations are big tax preparers like H&R Block, who are only too happy to see the feds swoop in to put their mom-and-pop seasonal competitors out of business. Kathryn Fulton, senior vice president for government relations, told the Washington Post the company was glad to support rules that meant H&R Block "won't be competing against people who aren't regulated and don't have the same standards as we do." With fewer tax preparers in the market, H&R Block will find it easier to raise prices.
In an EconTalk interview conducted by Russ Roberts, Milton Friedman observed that,'s always been true that business is not a friend of a free market. I have given a lecture from time to time under the title Suicidal Impulses of the Business Community, something like that, and it's true. It's in the self-interest of the business community to get government on its side. It's in the self-interest of a particular business.
It may get worse.  The Senate's odd couple, Max Baucus and Chuck Grassley are working on a project to let the IRS compute your taxes.
The feds are now getting in on this act, with Montana Democrat Max Baucus and Iowa Republican Chuck Grassley supporting a free e-file portal at the IRS Web site that would compete directly with private tax preparation software. In March, Treasury Secretary Timothy Geithner told a Ways and Means Committee hearing that he'd also like the IRS to begin sending taxpayers pre-completed returns.
The government could probably reduce the cost of criminal justice by doing away with juries and letting the prosecuting attorneys determine guilt or innocence, but I don't think that is a good idea either.

The Journal concludes that the Obama administration is trying to increase tax revenues without going to Congress for a new law.  I concur. 

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