EDITORIAL: Warren wants IRS to prepare tax returns

The IRS would be an unusual place to seek advice on how to increase your tax refund. Yet Sen. Elizabeth Warren, D-Mass., wants the agency to help low-income Americans file their taxes.

In mid-July, Intuit, which offers TurboTax, announced that it would no longer be participating in the IRS Free File Alliance. That initiative allowed taxpayers earning $72,000 and below to receive free tax preparation and online filing.

So Sen. Warren wants the IRS to step in to take away clients from the private sector and its evil “profits.”

“Intuit spent years chasing profits under the guise of helping low-income taxpayers,” she tweeted. “The government shouldn’t be relying on private industry to provide essential services. The IRS can, and should, create its own free tax preparation and filing system.”

But why should the taxpayers be on the hook to start a government-run service that is already available in the marketplace?

Intuit didn’t leave the Free File Alliance in order to stop offering free filing for the simplest returns. It will continue offering that service. During the past tax season, it provided 17 million free returns, but only around 3 million came through the Free File Alliance. Leaving the IRS’ program will allow TurboTax greater freedom to market its other products and services.

Companies do chase profits. But in a free market, companies profit by offering goods and services that people freely choose to purchase. These transactions benefit both parties.

Competition forces businesses to either lower their prices or increase product quality. In this case, the price of simple tax returns is already at zero. Intuit and other companies will eat that cost for the chance to offer other services.

Now, consider an IRS-run tax preparation service. There’s a clear conflict of interest. The IRS’ job is to collect tax revenue. Tax filers want to pay as little as possible. Having the IRS prepare tax returns would be similar to a prosecutor’s office providing accused criminals with a public defender.

In theory, the simplicity of basic returns would make this a moot point. If someone has no deductions, there shouldn’t be anything to argue about. But life rarely is as simple in practice as it is in theory — especially when there’s a government-run website involved.

“It’s hard to imagine,” notes Liz Wolfe of reason.com, “this highly dysfunctional government agency doing a better job at helping people file their taxes than the existing market players who have provided an immensely valuable service to millions of Americans.”

Ms. Warren, wearing her unwavering faith in big government on her sleeve, proposes the IRS enter the tax prep business. Perhaps now is a good time to recall that she also promised the federal takeover of the student loan industry would be a money-saver for taxpayers.