H McKee Stewart Jr

Musings on Business, Finance, and Economcs.

Should the IRS License Tax Preparers?

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Like Dan Alban, I have a tough time seeing a problem with tax preparers that needs to be solved via licensing. What I do see is a major windfall for Quicken, since by driving the local part time preparers out of the market they’ll be able to raise the price of TurboTax significantly. After all, most of the benefits from raising these kinds of barriers to entry flow to the big established competitors, not consumers. Keep out the riff-raff of the small local preparer – the person working as a book keeper who takes on tax preparation for friends and relatives to make some extra cash – and you’ll be able to raise prices.

The article also notes that H&R Block was an initial supporter of these proposed regulations – unless they can get a waiver from the requirements, licensing will likely gut their retail tax preparation business, which depends heavily on seasonal workers.

I’m not too worried about H&R Block; they have the resources to work the system to their advantage. One thing that we do know about regulated industries is that the regulated have a heavy incentive to capture the system to keep competition out and gain economic rents for themselves. The regulators have heavy incentives to go along, if only to get lobbying work later to supplement their pensions.

The rest of us, who only file taxes annually, simply don’t have the incentive or resources to keep the industry from picking our pockets.


Written by hmstewartjr

8 October 2010 at 3:18 PM

Posted in Uncategorized

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