This is a story about what happens behind closed doors in Washington, how politicians quietly sell out the public interest to lobbyists and campaign donors, and how both groups then manipulate the truth to get away with it.
Our main characters: The powerful tax prep companies TurboTax and H&R Block, and the legislators they seek to influence, most notably Rep. Richard Neal, who is chairman of the Ways and Means Committee in the U.S. House, which writes tax law.
Put on your wading boots. We’re headed deep into a D.C. swamp thick with money, influence, and your tax dollars.
Taxes may be one of the two things you can’t escape, but make under $66,000 a year and the law says you’re at least supposed to escape paying any filing fees. That “free file” system was developed in 2002 via a deal between Congress and the major players in the lucrative tax-prep industry. TurboTax and H&R Block, eager to prevent the IRS from threatening their profits by offering a free system of its own, offered to create and administer one instead. They had one key condition: The government had to back all the way off. They’d handle everything. Congress, ever eager to outsource to someone else, agreed.
There’s a lot wrong here already. The Free File system is one of those only-in-Washington deals worked out between an industry and members of Congress who bathe in that industry’s campaign contributions. Neal received $16,000 from H&R Block and Intuit, the parent company of TurboTax, over the last two election cycles. And while a new deal was being negotiated this spring, H&R Block’s PAC cut him an additional check for $2,500 for his 2020 race.
And unsurprisingly, the “Free File” system is a nightmare. The tax-prep industry has no incentive to tell you it exists. Congress, practically on their payroll, won’t make them inform you and has failed to regulate its quality. You likely had no idea that it existed, or whether you qualified to use it, before writing a check for hundreds last month to TurboTax or H&R Block. It turns out that only 3 percent of eligible Americans use it. Those companies work hard to keep it that way. TurboTax manipulates search results to keep their program hidden. H&R Block tells its employees to keep it a secret from their customers. (More on that later.) Neal and his Ways and Means colleagues are either oblivious or seem not to care.
But even if you managed to discover it, the free system does not work very well — except to upsell you to other TurboTax products. Users have complained that its main purpose seems to be confusing them into purchasing expensive and unnecessary add-ons, and also that it’s vulnerable to hacking and fails to safeguard vital personal and financial data. Sen. Elizabeth Warren has slammed it as a “failed, ineffective program that puts narrow corporate interests above taxpayers.” In March 2019, the national taxpayer advocate argued that it “is failing to achieve its objectives and should be substantially improved or eliminated.” The IRS’s own expert advisory committee, in a 2018 report, found that the IRS exhibited lousy oversight of the program and “put vulnerable taxpayers at risk.” The number of Americans using it has plummeted by millions over the last dozen years.
Richard Neal, however, thinks it is grand. On April 2, Neal described himself as a “longtime champion of the Free File program” when his Ways and Means committee advanced legislation titled, more than a little misleadingly, the “Taxpayer First Act.” Neal highlighted a provision that would “codify the existing IRS Free File program” as “help to low- and moderate-income taxpayers.” He described the program as a partnership between the IRS and “the tax preparation community to offer free online tax filing to people whose income falls in the bottom 70 percent.” Did he bother to read any of these widely covered reports?
The problem with Neal’s discussion of the program is that it deliberately obscures the truth. You might even call it swampy Washington bullshit. When Neal said that his bill would “codify the existing IRS Free File program,” what he left out was that he was gifting TurboTax and H&R Block their highest legislative priority. The bill actually prohibits the IRS, permanently, from developing a free system of its own. What it codifies is TurboTax and H&R Block’s role as wealthy middlemen between American taxpayers and the IRS. The “partnership” here is between an industry trying to protect its profits with a mediocre “free” product, and congressmen like Neal so deep in bed with them that he refers to these predatory grifters as a “community.” It’s a terrific partnership for TurboTax and Neal. For the rest of us? It’s only a partnership if you consider a robbery to be a deal between the victim and the person holding the gun.
What Neal also ignored, while he celebrated his failed program as a success, and attempted to enshrine the TurboTax giveaway into law for perpetuity, is how the tax-prep “community” intentionally hides it from the public. ProPublica reported in late April that Intuit deliberately hides the free version of TurboTax Free File on Google “by adding code on its site telling Google and other search engines not to list Turbo Tax File in search results.” H&R Block, meanwhile, instructs its employees: “Do not send clients to this Web Site unless they are specifically calling about the Free File program. We want to send users to our paid products before the free product, if at all possible.”
ProPublica finally found what seemed to be the free system after an extensive search. That’s when the upsell began. They attempted to file taxes for a house cleaner who makes $29,000 a year. They entered all the vulnerable financial data — and then, after going through dozens of pages, TurboTax said it wouldn’t be a free file, because their house cleaner was an independent contractor. It would cost $119.99 instead. So they tried the “free guaranteed” link again, with a Walgreens cashier who lacked health insurance. Once more, they entered all the personal data. And once more, TurboTax demanded an upsell, to $59.99, because there’s an additional form to fill out for the uninsured.
This is not the way the system is supposed to work. As ProPublica notes, “According to the agreement between the IRS and the companies, anyone who makes less than $66,000 can prepare and file their taxes for free.” Period. No matter how many forms are required. A growing number of members of Congress are beginning to understand how deep the problem runs. Both of Massachusetts’ senators, Elizabeth Warren and Edward Markey, signed letters to the IRS and the Federal Trade Commission on Friday calling for an investigation.
But instead of fixing a program that helps no one, is widely seen as a failure, and is the opposite of the technologically advanced filing allowed in dozens of other nations, Richard Neal moves to “codify” this “partnership” with the tax-prep “community.” And has the nerve to call it the “Taxpayer First Act,” when in reality, it is the “Richard Neal First Act.” He profits. We pay.
This is the truly rigged system in Washington: The backroom deals between members and donors that can’t be explained as anything but pay-for-play legalized corruption. It’s time to shine a light onto these backrooms and watch the swamp creatures scatter. And perhaps it’s time for Richard Neal to return the tens of thousands of dollars he collected from his friends at TurboTax and H&R Block in exchange for selling his constituents a rotten Washington deal.
David Daley, of Haydenville, is the author of the national best-seller “Ratf**ked: Why Your Vote Doesn’t Count” and the forthcoming “Unrigged: How Americans Fought Back, Slayed the Gerrymander and Reinvented Democracy.”