Obama's plan to simplify returns would make April 15 less taxing

Alice G. Abreu

is the James E. Beasley Professor of Law at Temple University School of Law

Although Hillary Rodham Clinton and Barack Obama both propose revisions to the federal tax system, only Obama promises to change the way many people prepare their returns. Both senators have plans that address the usual issues of tax rates and tax breaks, but only Obama proposes to change the very process of filling out a tax return.

Under the Obama system, the approach of April 15 would no longer mean choosing between completing bewildering forms and paying exorbitant return-preparation fees.

Obama proposes to adopt a system that was piloted in California to great acclaim from everyone except the tax-preparation industry. The idea is to have the federal government behave like your favorite charge-card company. No card company would ask you to tally up the receipts from your purchases, report them on a form, and then figure out how much you owe. Instead, since the company knows know how much you bought and how much you owe, it does the tallying for you and sends you a statement and a bill. If you disagree with the bill you can dispute it, but if you think the bill is correct you pay it. And you're done.

Now think about the Internal Revenue Service. For most taxpayers whose income consists of wages, the IRS has all the information necessary for filing a tax return; employers are required to send that information to the IRS, just as they are required to send it to you through an annual W-2. Once you've filed a return, the IRS also knows your dependents and their Social Security numbers. All of the information already is on IRS computers.

The change Obama proposes is inspired: Instead of using the information the IRS already has for the purpose of checking the accuracy of what you submit when you file your return, the agency would use that information to create a draft of your return.

Under the Obama system, you would receive the draft return showing the information the IRS already had. Your task then would be simple: If the information was correct and there was no additional relevant data, you would simply sign and file the return. If you were entitled to a refund, the IRS would send it to you or deposit it in your bank account; if you owed money, you would pay the balance. That would be all. No hassle, no fuss, no preparation fees.

If your life circumstances had changed during the year - if you had married, divorced, or had a child, or if you had additional income - you would have to adjust the return. But even then, your task would be to revise, not to start from scratch. Since you would not have to tell the government what it already knew, even the cost of retaining a preparer should go down. Your government would be working for you.

Of course, this proposal will not work for everybody. It would not work for people who own a house or are fortunate enough to have income from investments. But substantially more than half of taxpayers take the standard deduction, and it would work for many of them. The determination of tax liability for those taxpayers is simply an exercise in arithmetic. The IRS already does that arithmetic when it checks to ensure that a taxpayer's return reflects the information the agency has. The only difference would be that under the Obama system, the IRS would do the math before the taxpayer had to do it. Taxpayers could check the math and would retain the right to dispute the IRS's conclusions.

Obama's tax-return proposal reflects a creative new vision. He is thinking outside the traditional box of tax policy in a way that will make an immediate difference in millions of lives. He also is defying the tax-preparation industry lobbyists who nearly defeated the California initiative. The proposal deserves serious attention, and its proponent deserves credit for the creativity and independence he has demonstrated in making it.