NCPA - National Center for Policy Analysis


April 19, 2006

California is testing whether the government can ease taxpayers' annual pain by completing tax returns for them.

Under the pilot program, called "Ready Return," the state mailed 50,000 taxpayers completed state tax returns that computers filled in from financial records on file. The taxpayers either signed them and sent them back or redid them each of the past two years that the state has run the program.

  • All of the California volunteers met the criteria of being single with no dependents and having only one job last year. They could not have earned interest on investments. They could not have a home mortgage, stock holdings or itemized deductions.
  • Of 50,000 taxpayers selected for the California program, about 10,000 used the option. The instructions were sent to them in English and Spanish.
  • The program cost California about $211,000 last year.

California's test is being watched by Congress, the tax industry and economists, some of whom say the Internal Revenue Service -- not individual taxpayers -- should prepare simple federal returns.

Austan Goolsbee, a University of Chicago economics professor participating in the study says the program could reduce the number of people filing "small-potatoes returns." Moreover, he explains, if the focus is on the simplest cases, which amount to as many as 55 million returns, the cost would be small and possibly zero.

He based his estimate on a 1990s study by the Government Accountability Office that suggested the cost of policing errors in tax returns might be greater than having the IRS prepare simple returns. About a third of federal taxpayers could qualify to have the IRS prepare their taxes, he says.

Source: Tom Ramstack, "State ready to do taxes for you," Washington Times, April 19, 2006.


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