Friday, October 21, 2005

Software Industry Power

As our communication becomes increasingly based in electronic means, the matter of who controls the protocol for communication is a very important issue. I personally prefer electronic communications for a variety of reasons. So does the IRS, at least when it comes to processing tax returns. The electronic return saves the efforts of a legion of workers who otherwise would have to take data from a paper return and input it into an electronic form. Instead of using government employees to do this work, it is essentially pushed upstream to the taxpayer, who must imput the information herself. For this, we get some assurance that our returns won't be lost in translation. We also get quicker access to refunds, etc.

Many of us use software programs like Turbotax to accomplish this task. Along with the protocols for filing, it also prompts us along the processs to be sure we are getting the right information. By and large, I think they do a serviceable job. I don't like the fact that they can't ever seem to ship a complete product, and that they are virtually inaccessable after you have the program in hand. But otherwise, they make complex calculations for me (like depreciation) and it is fairly effortless. Once you get started with them, it is a hard habit to quit.

A recent story from the BNA Daily Tax Report (10/19/05) raised an interesting issue regarding a provision in a pending appropriation bill. It seems the software industry is lobbying to prohibit the IRS from developing any competing tax software. This presents a dilemma:
On one hand, we ought to discourage the government from doing things that private firms already do well. On the other hand, the thing that private firms do well here is essentially help us comply with a government function (i.e., paying our taxes). Adding cost to that function (my latest Turbotax order cost me $89.95, and on top of that I'll pay more for state programs and e-filing) is not desirable. Having the industry lobby to protect their turf means we get to keep paying them to do this task for us.

I think the industry should relax: if the IRS did come up with software, I would still bank on private firms to compete with a better mousetrap with features that made it worthwhile to continue paying them. (My pal Ernie agrees with me on this). However, to the extent the government wants to claim the exclusive means for tax preparation software, that would be worth fighting about.


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