July 21, 2010

Intuit just won't quit

Here we go again. Another legislative session, another well-funded campaign waged by Intuit Corp. to abolish California's free, innovative and wildly popular electronic tax filing programs, ReadyReturn and CalFile.

These two programs provide California taxpayers with a reliable, voluntary, safe and free way to calculate and file their taxes. ReadyReturn offers an already completed state tax return using information in the state's possession (from a W-2, for instance) as a starting point. It's for single filers whose income, up to $240,000, comes only from wages. CalFile offers free, interview-style online filing for somewhat more complicated tax situations. It's for married as well as single taxpayers with incomes up to $320,000. The state estimates that 6.4 million Californians are eligible for these services—more than 40% of the state's taxpayers.

As state programs go, these two count as successes. ReadyReturn, for instance, has been available for five years (CalFile for more than eight) and boasts user satisfaction above 98%. In fact, the Franchise Tax Board maintains a Web page featuring unfiltered direct quotes from users expressing their gratitude and appreciation for the program: "Great service ... takes the stress out of taxes!"; "LOVE LOVE LOVE this service"; "this system rocks!"; and "THIS IS THE BEST SERVICE I HAVE EVER SEEN BY THE GOVERNMENT." Moreover, the state continues to enhance its offerings. Over the next year, it plans to launch a cutting-edge, e-security platform.

ReadyReturn and CalFile also save taxpayers and the state money. The FTB estimates the two programs save taxpayers between $4 million and $10 million in fees for figuring and filing their taxes, while also netting the state $500,000 annually in reduced processing and administrative costs. If Intuit gets its way, a large portion of the taxpayers' savings will evaporate because many people would turn to preparers or to fee-based software for help. Indeed, the FTB estimates that 45% of current ReadyReturn and CalFile users (roughly 130,000 taxpayers) would not qualify under Intuit's plan. Millions more, currently eligible but not yet participating in the state's free e-filing services, would never have an opportunity to experience the programs' benefits. If a significant number of these taxpayers turn to paper returns, the state stands to lose its savings as well. (Paper-filed returns cost $2.59 to process versus 34 cents for e-filed returns.)

Despite the success and savings of ReadyReturn and CalFile, Intuit wants both programs to disappear—badly. It manufactures TurboTax, and it's leading the fight to replace the state's free tax filing programs with its and other software manufacturers' programs. The upside is that the software industry would conveniently combine state and federal filing. The problem is, these combo deals would cover just a fraction of the Californians eligible for the state's existing programs. If Intuit, for example, matches in California what it offers in other states, it would only cover taxpayers earning up to $31,000. And the software would be merely a stripped-down version of what others pay for. (This kind of minimalism in the free federal filing program has caused Sen. Charles E. Grassley (R-Iowa) to claim that taxpayers would be "better off with a pencil and an abacus").

Most importantly, Intuit is offering nothing that California doesn't already have. The state has arranged with other tax software providers to do exactly what Intuit proposes: Help low-income folks fill in and file state and federal returns for free—although Intuit refuses to participate. It apparently only wants in on this deal if the state knocks out its free programs, thereby creating a larger potential paying customer base for TurboTax.

Not surprisingly, Intuit has been greasing the wheels in order to try to sell its scheme in California. Since 2005, public filings indicate that Intuit has spent $1.25 million on lobbyists in the state. Over the same period, it contributed an additional $2.12 million to statewide campaigns, including more than $1 million to state Sen. Tony Strickland (R-Thousand Oaks), a ReadyReturn foe who is running for state controller. In all, Intuit has doled out cash to nearly 120 politicians.

The impact has been clear, even if Intuit hasn't gotten its way—yet. As documented in The Times, in 2009 California Republican legislators held back their votes on 20 bills in an attempt to do the corporation's bidding and force the abolition of ReadyReturn and CalFile. They didn't succeed in killing the tax programs, but they did kill funding for domestic violence shelters, police and fire departments, and prevention of swine flu outbreaks.

And now Intuit is adding Democrats to its target list, according to party staffers. It's hired lobbyists to work specifically with members of the majority party.

Abolishing ReadyReturn and CalFile would hurt Californians. Intuit's alternative would cover fewer taxpayers and provide fewer services; it would cost individuals millions of dollars in preparation fees (much of which Intuit wants to pocket); and it would kill two programs that actually save the state money.

It doesn't add up for anyone. Except Intuit.

Cross-posted from the Los Angeles Times Op-Ed section.