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Government licence doesn't confer competence

October 02, 2009

Peter Pappas helps clarify some of the points of those favoring additional regulation and licensing of tax preparers:

The purpose of tax preparer regulation is to reduce the number of incompetent and unscrupulous preparers. Consequently, competent preparers will of course benefit from it. The goal of all regulatory/licensing regimes is to benefit those who meet certain pre-determined standards and exclude those who do not.

There are two assumptions here:

1. Additional regulation will actually do good things, and
2. The cost of the additional regulation will not exceed the benefits.

We could reduce the number of unscrupulous preparers just by taking half of the preparers out and shooting them. Sure, we'd get rid of a lot of competent and honest preparers too, but it would get rid of a lot of quacks. Licensing, while less drastic, would do much the same thing. There would be fewer incompetents, but many competent seasonal preparers would throw in the towel rather than go through the hassle of testing and dealing with a new IRS bureau. It's not at all clear the work product would improve. Higher prep fees would send more folks to Turbotax and do without outside help, which hardly improves return quality. It would also enable licensed quacks to charge more.

Peter does make a good point:

Joe’s argument could be applied to all professions and all regulatory regimes.

He is exactly right. There are hundreds of entrenched regulatory regimes (I work in one). But hundreds of wrongs, or maybe wrongs, don't make a right.

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