Follow John Mitchell's Advice

John Mitchell, Nixon's Attorney General, once said, "Watch what we do, not what we say." The Republicans in Congress seem intent on rehabilitating Mitchell's reputation by proving that, at least that one time, he was correct.

One of repeated themes of the right wing attack on the federal tax system is that the cost of compliance is too high. While most of that attack has been focused on the complexity of the federal tax system, one would think that the conservative crocodiles would at least attempt to maintain a semblance of consistency by supporting an effort that would reduce the costs of compliance. One would be wrong.

Tax Analysts reports:

The Senate on October 20 passed its fiscal 2006 Treasury funding bill, which included a controversial measure to bar the IRS from creating its own tax return preparation software.

The measure, originally authored by Sen. John Ensign, R-Nev., would ensure that the IRS can't compete with private industry tax software providers and could affect the future of the agency’s "Free File" initiative. The IRS and private industry are currently negotiating over an extension of the program, under which private tax software companies provide free tax return filing services for low-income taxpayers. Some Washington observers have speculated, however, that the IRS could be looking into developing its own free software.

The IRS declined to comment on the situation.

The bill matches President Bush's request of $10.7 billion for the IRS in fiscal 2006, a 4.3 percent increase from the agency's fiscal 2005 total budget of $10.2 billion.

National Taxpayer Advocate Nina Olson, who is not involved in the Free File negotiations, expressed concern about where the proposal might leave taxpayers. Olson has publicly backed installing a free tax return template on the IRS Web site.

"If Congress now prohibits the IRS from spending funds to provide free tax preparation and filing software directly to taxpayers, the IRS will lose all of its leverage in negotiating a new agreement with industry," she said. "Industry might benefit, but taxpayers would lose."

One Democratic Senate staff member familiar with the issue told Tax Analysts that the measure was one the "most contentious" issues surrounding the bill. The staff member echoed Olson's sentiments, saying that the measure, if enacted, would weaken the IRS's power in negotiations over a new agreement.

I believe that this once John Mitchell was right. By their actions, Congressional Republicans have made it clear that their blather about reducing tax compliance costs should not be taken seriously. The argument is offered not for its merits, but to obscure the intent of their effort to undermine the federal tax system.