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Preparer regulation: it works by making you pay more for me

March 30, 2010

I don't believe additional preparer regulation is necessary. It will raise costs to taxpayers without increasing the quality of the service enough to make it worthwhile.

Peter Pappas finds the price increase a feature, not a bug:

The truth is, tax return preparation prices have historically been too low because of the lack of even a single barrier to entry into the profession.¹ The lack of standards artificially drives down price. That’s because a profession that has no standards is no profession at all, and its “members” are not entitled to charge a premium merely by claiming that it is one.

This is a wonderful example of Public Choice Theory in action. Established players use the power of government to set up barriers to entry, enabling them to raise prices because competition is reduced.

My view is that there are already plenty of ways for preparers to distinguish themselves. Enrolled Agents, CPAs and Attorneys all have distinctive credentials, enabling them to charge more. Peter is both a CPA and an Attorney, and I'm sure he can charge more than some guy at Liberty Tax Service. But not everybody needs a CPA/Attorney. Some people just need somebody to help them claim an earned income credit, or to walk them through Schedule A. And there are plenty of people without letters after their name who do a good job preparing returns. The market - the voluntary interaction of millions of individuals - is far better suited to match individuals with the right level of preparer than Doug Shulman is.

One consequence of higher prices will be that fewer people will use preparers. It's still legal to do your own return. It's hard to see how that will improve the finished product.

Tags: Douglas H. Shulman.Peter Pappas.Public Choice Theory.

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Comments

Joe,

The increase in price is not evidence that tax regulation works, but rather, a consequence of it working.

And I don't favor tax preparer regulation because it will make me more money. I don't do enough returns for it to make a difference. I support regulation because I think functional illiterates with criminal records shouldn't be preparing tax returns for a fee.

Having said that, you continue to make very persuausive arguments against regulation.

I'll keep reading them.

Posted by: Peter | March 30, 2010 1:59 PM

Peter, thanks. I know your arguments for regulation are not self-serving, and that you sincerely think it will help . I apologize if I gave an impression otherwise (H&R Block, well, that's another matter).

I just don't think the small amount of improved preparer quality that may result will be worth the big increase in hassles and government power, or the millions it will cost clients.

And likewise I enjoy your responses.

Posted by: Joe Kristan | March 30, 2010 3:35 PM