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New IRS Regs Threaten Jobs of the Future

A new threat to the nascent jobs of the future has emerged: the IRS. The IRS recently announced that it will be rolling out new fees and regulations for individual tax preparers, which are expected to dramatically increase costs for the entire industry. The Washington Post reports:

Some fear the IRS campaign against tax fraud could squeeze out small, independent businesses and allow large competitors such as H&R Block and Jackson Hewitt Tax Service to capture market share. […]

To get certified, preparers will need to register and pass a competency test. Some will need to be fingerprinted, pass a background check with the FBI and take continuing education classes.

The IRS estimates the licensing fee for each tax preparer at between $250 and $275, but H&R Block expects the cost will be more than $400, including state fees and its own background-check expenses. […]

“The fees definitely do pose a barrier to entry,” said McCabe, who noted that tax preparation has been a valuable job opportunity for many older people and women with young children looking for part-time work.

This is exactly the opposite of the course we should be taking now. Politicians on both sides of the aisle talk endlessly about their love of small business, and yet regulations such as these will make it much more difficult for small businesses to emerge. By requiring new licensing programs and charging fees for registration, the IRS is raising the barriers for entry into an industry which has long provided work for individuals running small operations. Large corporations have the capital and the resources to weather these changes without much trouble, but for a mother working as a tax-collector on the side, time and monetary constraints may force them out of their business. Rather than encouraging the development of the jobs of the future, these regulations will discourage would-be entrepreneurs from entering the marketplace.

That’s not the only thing wrong with this ham-handed approach.  Tax preparation is a significant expense for small businesses: IRS record keeping requirements are complicated and time consuming, and the tax code is so baffling that few small entrepreneurs have the skill or the time to do their taxes on their own.  Raising costs for tax preparers and reducing the number of competitors in the business inevitably will raise costs for small business.

We need to simplify tax compliance for small business and reduce the costs and the friction associated with doing business and, especially, the costs and regulations associated with hiring people to work in a small concern.  It looks as if the IRS wants to do just the opposite.

Big mistake.

This speaks to a larger problem with America’s regulatory regime. Running a business can be messy, and some regulations are naturally required. As these rules become more complex, however, more and more effort is required simply to comply with regulations. Large businesses have departments set aside for this sort of thing, but small operations of one or two simply don’t have the time — they’re too busy just keeping their business afloat. Small business is inherently messy, and bureaucrats hate this. But these are the jobs of the future — our bureaucracy should be reformed to suit the needs of our business, and not the other way around.

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  • Mike M.

    “The bureaucracy is expanding to meet the needs of the expanding bureaucracy.”

  • Agricola

    This is in fact not the IRS acting spontaneously, but rather the effect of rent seeking by the large tax preparers, who wish to erase their competitors. Lobbying, campaign contributions, both of which will decrease competition, increase costs, and negatively effect competition.

  • Lexington Green

    The corporatist oligarchy hates small business and wants to stamp it out. Anything that creates a disparate burden on individuals and small businesses will prevail under the current politico-economic regime. Mr. Obama is sometimes called a communist by his detractors. But he is more like a smoother, less energetic Mussolini.

  • Scott

    I have long wished that my friends in government could understand what you put so succinctly:

    “but small operations of one or two simply don’t have the time — they’re too busy just keeping their business afloat. Small business is inherently messy, and bureaucrats hate this.”

    Regulators always assume businesses hate regulation because it keeps them from doing bad stuff the businesses want to do. At least from a small business view, it’s because it confuses the hell out of us and keeps us from doing the business we are trying to create.

    Regulatory confusion and complexity destroys the respect of law that is so important to our system.

  • Claude

    The purpose of registration is to combat tax fraud. Some preparers “compete” for business by adding phony dependents or deductions to inflate refunds.

    • Walter Russell Mead

      @Claude: not saying there is no problem, but the cure can be worse than the disease.

  • Kris

    A capital idea! In addition, any IRS agent wishing to audit me will have to be certified by me, which will involve registering, passing a competency test and a background check, and paying me a modest fee.

  • fiona

    I certify every year for an IRS program called VITA/TCE. I volunteer to assist low income people in my city. I have dealt with some of the returns produced by the part-time folks that will now have to be certified. Poor people are robbed by these so-called tax experts and in most cases would be better off using free software. Simplifying the tax code would put a lot of people out of business, including some lawyers and CPA’s, so obviously we can’t have that.

  • Terry Griffith

    It seems like the IRS would want to leave people alone right now. The economy is on the bring of disaster and now is not the time to kill the revenue source.

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