Episode 760: Tax Hero

Mar 22, 2017

Doing your taxes doesn't have to be a pain. In many countries around the world, filing taxes is so easy and painless, "tax day" isn't even a thing.

Back in 2005, a little group of California tax experts were talking shop and they figured, we could do that here in the U.S. A lot of people in California get all of their income from their paychecks, and taxes are already withheld from those paychecks. In those cases, California could just fill out the W-2 for the taxpayers, who could check for errors and just send them back in. Easy as 1-2-3. (That was the slogan the state came up with). They named it: ReadyReturn.

A tax law professor, Joseph Bankman, thought this was such a no-brainer, he offered to help test out the idea with a small group of California taxpayers. He ran a little trial and ReadyReturn was such a huge success. Taxpayers raved about how great it was. Other states started paying attention to see if they could use the plan, too. California's governor at the time, Arnold Schwarzenegger, supported the plan.

Bankman thought getting ReadyReturn through the California legislature would be smooth sailing. He thought wrong.

Today on the show, what happened when one mild-mannered professor took on the tax system.

(Today's episode was reported with Priceonomics. Read a version of this story on their website.)

Music: "Hello Girls." Find us: Twitter/ Facebook.

Subscribe to our show on iTunes or PocketCast.

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

STACEY VANEK SMITH, HOST:

One of our producers here at PLANET MONEY, Elizabeth Kulas, recently moved here from Australia. And last week she got kind of an initiation into American life. She did her taxes. At first, she and her husband, Matthew Harding, tried to do it on their own. And the taxes kind of took over their apartment.

MATTHEW HARDING: On our dining room table, we have a pile of W-2s, five 1099s, and then there's some other forms like a 1095-C.

VANEK SMITH: Elizabeth and Matthew realized they were going to need some help, so they hired an accountant.

HARDING: It could easily be $500 that we're going to spend at the accountant.

ELIZABETH KULAS, BYLINE: Wait - what did you said to me the other day? You would be happy if it was less than a thousand dollars that she charges us.

(LAUGHTER)

VANEK SMITH: And this is all kind of blowing their minds because there is nothing like this in Australia. In Australia, paying taxes is really fast and easy. In fact, Elizabeth and Matthew couldn't even tell me when Australian tax day was.

So is there an equivalent of April 15 in Australia?

KULAS: Not really, yeah?

HARDING: No, there is, yeah.

KULAS: But I don't remember it being such a thing.

HARDING: I think it's, like, February or March.

VANEK SMITH: It's October 31, actually. But in most of the rest of the world, they don't know when tax day is either. All of the crazy stress around taxes - the 24-hour hotlines, the software, the accordion folders full of receipts, the lines down the street at H&R Block - that is pretty much just a U.S. thing.

So we have it the worst? Our taxes are the worst taxes?

JOSEPH BANKMAN: Our filing system is the worst.

VANEK SMITH: Like, objectively?

BANKMAN: Yeah, objectively.

VANEK SMITH: Joseph Bankman is a professor of tax law at Stanford. And he says, collectively, we spend billions of dollars and billions of hours every year filing our taxes - not to mention the emotional angst. And Joe says it does not have to be this way. And in most of the world, it's not. And Joe knows exactly how to fix this.

(SOUNDBITE OF ANDREW PETER KINGSLOW AND JAMES KNIGHT'S, "HELLO GIRLS")

VANEK SMITH: Hello, and welcome to PLANET MONEY. I'm Stacey Vanek Smith. And with me today is Alex Mayyasi from Priceonomics.

Hey, Alex.

ALEX MAYYASI: Hey, Stacey.

VANEK SMITH: And Alex, you brought us this great story of Joe versus the tax system.

MAYYASI: That's right. It's the story of this lovable professor who believes that paying taxes does not need to be so difficult. He goes on a year-long quest to make filing taxes easier for everyone.

VANEK SMITH: And you might be wondering - but who would want to keep taxes complicated? Well, I will tell you who, a multibillion-dollar corporation and one of the most important power brokers in Washington.

(SOUNDBITE OF ANDREW PETER KINGSLOW AND JAMES KNIGHT'S, "HELLO GIRLS")

VANEK SMITH: So Alex, Joe Bankman does not look like your typical warrior hero. What's the best way to describe him?

MAYYASI: When Steven Spielberg inevitably directs a blockbuster movie about taxes, Joe Bankman will be played by Tom Hanks.

VANEK SMITH: (Laughter).

MAYYASI: Mind you, it's a Tom Hanks who's been teaching tax law at Stanford for 30 years.

VANEK SMITH: Also, a very dressed-down Tom Hanks because, Alex, when we talked to Joe Bankman at Stanford, you remarked that, you know, nobody was very dressed up.

MAYYASI: Joe and I are both pretty casual, I suppose.

BANKMAN: Alex is being very sweet. But as I look at these pair of slacks...

VANEK SMITH: (Laughter).

BANKMAN: ...I notice there's a stain on one of them, and the cuffs are frayed.

VANEK SMITH: So most of us really hate taxes, but Joe Bankman loves taxes.

MAYYASI: Joe loves taxes so much that he thinks about them in his spare time. In fact, he spent time when he's not in class or on campus helping the state of California work on tax policy.

VANEK SMITH: Back in 2003, Joe was part of this little team that was working with the state to help take down tax shelters.

BANKMAN: We had just done a bill to penalize a form of tax shelter, and it raised a lot of money for the state. And we're all out to lunch at a mediocre restaurant in Sacramento.

VANEK SMITH: Oh, you were, like, celebrating.

BANKMAN: Yeah, we were celebrating.

VANEK SMITH: Joe and his California tax team are eating lunch and talking shop. And they tell Joe they have this idea, an idea they think would save California a bunch of money and time and help taxpayers. They say, most people in California have really simple taxes. They get all of their income from a regular paycheck, and taxes are already withheld from those paychecks.

BANKMAN: So their idea was - why don't we start off giving them a tax return that's already filled out with the income we know they have? And then they can make corrections on it. That was their idea.

VANEK SMITH: Basically, the government would send you a tax return that was already filled out. It would include all of the income that the state knew about, all the taxes that had already been withheld from your paychecks. And you would look it over and mail it in.

MAYYASI: Joe knew this was how taxes worked in most countries. It's how it works in Europe, parts of Asia, Scandinavia, Australia. And so he thought, why not here?

BANKMAN: The way I think of it is, imagine if the credit card companies acted like the IRS. Each month, you'd get a Visa bill, and it'd be a blank piece of paper. And you'd have to write down all of your purchases and add it up. And if you did it wrong, you'd face a penalty. So the IRS could act like Visa.

VANEK SMITH: And paying taxes would be like paying a credit card bill. And we could be like Elizabeth and Matthew, our first-time taxpayers, and not know when our tax day is either.

So now Joe and his team had this idea. But they still needed to make it real. They had to figure out what this form would be and what it would look like.

And so Alex, we have it right here in front of us. It does not look like a tax form (laughter) I've ever seen.

MAYYASI: Yeah. You know, it's just one page. It looks pretty friendly. It's not a bunch of legalese. You know, it says easy as 1-2-3. Step one - review your return. Step two - make any changes. And step 3 - send it back. That's it.

VANEK SMITH: I know. There's something so friendly about it. At the top, it says filing your taxes just got easier. And then it has the name that Joe and his team gave to this form and to this whole project.

BANKMAN: We called it a ReadyReturn.

VANEK SMITH: Oh, I like ReadyReturn. It's snappy.

BANKMAN: It's snappy, isn't it?

VANEK SMITH: Now Joe and his California tax team have this form ready, this very friendly form. But they still have to see if ReadyReturn is actually going to work - if taxpayers would use it, if they would like it. So they did a pilot program in California. In the 2004 tax season, they sent ReadyReturns out to about 11,000 taxpayers along with this little survey.

BANKMAN: So we asked people, do you think you'd like to use this again next year? And 99 percent of the people said yes. Ninety-nine percent of people don't say yes to anything.

VANEK SMITH: Ninety-nine percent is sort of amazing.

MAYYASI: I talked to someone else who was involved in ReadyReturn. And what he told me is, when you work in government, nothing gets reviews like that. He said you don't get 99 percent satisfaction rates with the polio vaccine. It's just unheard of.

VANEK SMITH: (Laughter) Probably true.

And it wasn't just the survey either. The thing that Joe was actually the proudest of were the comments that people had written in on their surveys. And he actually brought a stack of these printed-out comments in to talk with us.

BANKMAN: What I do is I rifle through some of the pages, and then I ask people to tell me when to stop because I don't want to anybody to think I'm cherry-picking. So tell me - here, Alex can see me. Tell me when to stop.

MAYYASI: Flipping through the pages - and I will tell him to stop right now.

BANKMAN: OK.

MAYYASI: He's on a random page.

BANKMAN: I'm on some random - and the first one, (reading) thank you for allowing me to participate. Second, (reading) this was very easy and convenient, third (reading) no problems, I loved it. I think this is..

VANEK SMITH: Someone said I loved it?

BANKMAN: Here's one that says (reading) P.S. - is this same service available for federal tax returns? This is all capped.

MAYYASI: Someone used all caps positively?

BANKMAN: Yes.

MAYYASI: And there was one comment that really stuck with Joe.

BANKMAN: Finally, government's doing something to make my life better for a change.

VANEK SMITH: What did you think when you read that?

BANKMAN: I was really touched. I mean, I was really moved. I'm even moved as I think about it now. 'Cause it - for someone like me, that's your dream right. You know, if you think about filing taxes each year, it's one of the most important interactions you've got with your government.

And how does it make you feel? It makes you pissed. You can't understand it. You're anxious. You're worried about screwing up. And we make 160 million people go through this every year. That's - that's really bad.

VANEK SMITH: Did you think that - if we improved that, did you think it would, like, help improve people's relationship with the government?

BANKMAN: Absolutely.

VANEK SMITH: Joe thought his little ReadyReturn form could make a big difference in the country. Of course, first, ReadyReturn had to pass the California State Legislature in Sacramento. But Joe wasn't that worried. I mean, everyone who had tried ReadyReturn had loved it. And California Governor Arnold Schwarzenegger was also on board. So Joe started making the two-hour car trip from Stanford to Sacramento every week to talk with legislators.

BANKMAN: Well, I thought that if I just talked to people, they'd understand. I was kind of naive. I thought, well, I get it that people are conservative or liberal. But since this is a nonpartisan issue, I'll just talk to all of our representatives in Sacramento and explain things to them. I'm a talker. I thought I could do that.

MAYYASI: Joe's a talker.

VANEK SMITH: He is a talker. And he made a list of all the legislators who would be voting on ReadyReturn. And he just started calling up their offices and asking for meetings.

BANKMAN: I wasn't getting enough meetings. People would put me off, or they'd say we'll get back to you.

MAYYASI: And even when Joe did get a meeting, it didn't always go so well.

BANKMAN: Well, one meeting, somebody said - I've been warned about you. That was what it started with.

VANEK SMITH: (Laughter) What did they mean?

BANKMAN: They meant that the Intuit lobbyists had already been in.

VANEK SMITH: Intuit is the company that owns Turbo Tax. Turbo Tax is, of course, the very popular tax preparation software. It is a multibillion-dollar business, a multibillion-dollar business that was now staring down the barrel of Joe's ReadyReturn plan.

And if you look at this from Turbo Tax's point of view, this is not good. I mean, ReadyReturn is all about making taxes easier. And if your taxes are easier, you're a whole lot less likely to spend a hundred bucks on tax preparation software.

MAYYASI: So Joe started hearing that Intuit was asking around about his plan. He would give these little talks, you know, for legislators about ReadyReturn. Or he'd give an academic talk for students and professors. And he started noticing something odd. Whenever he gave a talk, he would always notice someone from Intuit in the crowd.

BANKMAN: They would show up at talks I would give.

VANEK SMITH: How would you know it was them?

BANKMAN: I give a lot of talks. And I'm only going to get, like, 10, 30 people. And everybody looks like an academic. But one woman comes in, and she's kind of looking a little corporate. She's, like, dressed better than the rest of us, right?

VANEK SMITH: Oh.

BANKMAN: And so that's a tip-off right away.

MAYYASI: Tax academics are not the best-dressed people in the world?

BANKMAN: No.

MAYYASI: Intuit didn't want to talk to us for this piece, but they sent us a statement. It said that they have long advocated for tax simplification but that ReadyReturn, quote, "minimizes taxpayer engagement." They think that's a bad thing.

VANEK SMITH: Joe discovered that Intuit had been very busy in Sacramento - meeting with politicians, giving money. Intuit gave a million dollars to a PAC that supported one of the key politicians on the ReadyReturn issue. And this kind of thing happens all the time when you have a little group that is very invested in an issue that affects a lot of people.

I mean, the little group, in this case Turbo Tax, is willing to spend tons of time and tons of money making something happen. And the large group of people that might benefit a little bit are not willing to spend that time and money. For instance, I would love it if filing my taxes were easier, but I haven't called my congressman. I'm not really willing to spend a whole bunch of money to make that happen. Then again, I am not Joe.

BANKMAN: So that's the point where I decided to hire my own lobbyist.

VANEK SMITH: (Laughter) I've never even heard of someone hiring their own lobbyist.

BANKMAN: It was really fun. I really enjoyed hiring a lobbyist. I hired a guy named Mike Robson who is smart as a whip, really likable, kind of looks like a more svelte James Gandolfini.

MAYYASI: But that lobbyist - he didn't come cheap.

VANEK SMITH: How much did that cost?

BANKMAN: They gave me a deal because they thought it would be kind of fun to work for this crazed professor.

VANEK SMITH: They were working for you, just you?

BANKMAN: Yeah. They were working for me. And so the normal price, I think, would have been $140,000 to get Mike's services. But he gave it to me for only 35. So I paid 35,000, I believe.

VANEK SMITH: Like, of your own money?

BANKMAN: Of my own money.

VANEK SMITH: Like, your savings?

BANKMAN: Yeah.

VANEK SMITH: Why did you spend that money that way?

BANKMAN: Well, I felt lucky, again, to be able to do - it's a great cause. And everybody, I think, has some causes they think are good causes. And this was a cause that was really good, and nobody else was going to do it but me.

VANEK SMITH: And making that investment, hiring Mike, it paid off.

BANKMAN: With Mike Robson, everybody would talk to me.

VANEK SMITH: Why?

BANKMAN: Well they had relationships with him. Legislators kind of liked that I was with Mike because they also - it kind of legitimated me. They figure, if you're with Mike, you're probably sensible. You probably are going to get good information. If I have a question, I can call your lobbyist if I can't get hold of you.

MAYYASI: The meetings start to go a little better. Legislators started listening to Joe, telling him - you've got my vote. But Joe says he noticed it was hard to get Republicans to back ReadyReturn. It wasn't just Intuit or campaign money. It had to do with a pledge.

BANKMAN: And privately, I should say, a lot of the Republicans told me, well, this just sounds like a no-brainer. I just can't do it because Grover Norquist has opposed it.

GROVER NORQUIST: Hello. My name is Grover Norquist. I am the president of Americans for Tax Reform. We fight for taxpayers, try and keep taxes low.

VANEK SMITH: Grover Norquist is a famous anti-tax crusader. He heard about ReadyReturn and sprang into action.

NORQUIST: So it is a way to raise taxes, a way to send people a bill for more taxes than they owe. And they're unlikely to contest it. People don't fight the IRS.

VANEK SMITH: Norquist thought ReadyReturn is tantamount to a tax hike because once the government has taxpayers on autopilot, just sort of signing and sending, they'll start sneaking things in, like how cell phone companies sneak in little charges. And you look at them and sort of wonder about them. But in the end, you just pay because it's easier.

MAYYASI: And Norquist has this famous pledge. Republicans all across the country take it. And the pledge basically says I will not support any plan that raises taxes. And that was a problem.

VANEK SMITH: What happens if people break the pledge?

NORQUIST: When somebody breaks the pledge, their opponents in the next election tend to remind voters that they lied their way into office. And the press tends to focus on it.

MAYYASI: Norquist put out the word to California Republicans - if you back ReadyReturn, you have broken the pledge.

VANEK SMITH: So Joe Bankman, this tax law professor, and his lone lobbyist are now battling not only a multibillion-dollar software company but also one of the biggest names in U.S. politics.

MAYYASI: Joe kept telling everyone, this won't raise taxes. It will just make it easier to pay them. It will save everyone time and money. But Joe says he talked to a lot of small-government types. And actually, they wanted paying taxes to be difficult. Their logic was if paying taxes is difficult, people will hate taxes and vote against them.

VANEK SMITH: But Joe and Mike kept going. And they started gaining ground little by little with Democrats and Republicans locking down votes. And a couple weeks out, they needed just one more vote - one more vote - to make ReadyReturn happen in the entire state of California.

And then...

BANKMAN: I found a Republican that was going to support it.

VANEK SMITH: Joe convinced a Republican legislator to back the plan - ignore the pledge, ignore the campaign money. After a year of taking on corporate lobbyists, political power brokers and so many talks - after spending $35,000 of his own money, this was it. ReadyReturn looked like it was going to happen.

MAYYASI: Just before the vote, Joe had to drive back down to Stanford. But he asked some of the politicians who supported ReadyReturn to keep him updated. The day of the vote, Joe remembers getting a call.

BANKMAN: I could tell by the tone in his voice what the answer was before he said anything. And he said, so and so - I've even forgotten the legislator's name - is not with us. It looks like we're going to be one vote short.

VANEK SMITH: One vote short. The Republican had changed his mind, and Joe had lost. And all of the other states that had been calling Joe asking how they could implement a plan like this, they kind of dropped away.

BANKMAN: It was a little bit crushing to lose like that.

VANEK SMITH: How much time had you invested in this?

BANKMAN: You know, in a way, it was a year of my life. It was a pretty big blow.

MAYYASI: So Joe went back to teaching full time. But he kept pushing ReadyReturn. A version of it did survive in California. It's buried in the state's tax site, but it's there. A few hundred thousand people use it every year.

VANEK SMITH: And ReadyReturn has had a pretty interesting legacy. Elizabeth Warren and Bernie Sanders introduced a bill that looked a lot like ReadyReturn last year, and they referenced Joe's pilot program. It didn't end up happening.

MAYYASI: But Joe says, we keep getting close. Eventually, he thinks it's going to happen.

BANKMAN: My fantasy is that, at some point, it just makes so much sense. We'll join the rest of the world, and we'll do it. And I don't know how that's going to happen with our current political climate. Maybe some mid-level bureaucrat will just make the change herself, and it'll go through. It'll kind of fly under the radar. That's what I think will happen sooner or later - somehow.

VANEK SMITH: In the meantime, people like Elizabeth and Matthew, our first-time U.S. taxpayers - not to mention all the rest of us - are stuck spending hundreds of dollars and many, many hours filing our taxes. But it is not without its upsides.

KULAS: And there's a little bit of a sense of, like, accomplishment when we get through it now.

HARDING: Yeah, it's like - I think - I was saying to Ellie, like, if we can do this, like, we can do anything. This is probably the most daunting task that we've come across, filing a tax return.

KULAS: Stacey, some couples go to Ikea to put their relationship to the test. We file our tax return.

VANEK SMITH: Welcome to America.

(SOUNDBITE OF ANDREW PETER KINGSLOW AND JAMES KNIGHT'S, "HELLO GIRLS")

VANEK SMITH: One last thing, we found another pretty interesting moment when someone tried to make people excited about paying their taxes. They wrote a song - right after this.

(SOUNDBITE OF ANDREW PETER KINGSLOW AND JAMES KNIGHT'S, "HELLO GIRLS")

VANEK SMITH: For most of U.S. history, most people did not pay income taxes. Up until the '40s, only about 5 percent of Americans paid income taxes at all. But during the '40s, the government needed to raise money for World War II, so it rolled out a larger income tax to about 75 percent of Americans.

And at this time, people were pretty much behind the government. There was a lot of support behind wartime efforts. And Irving Berlin was a very patriotic guy, and he was moved to write this song to get people behind paying income taxes to support the war. Here's his song. It is called "I Paid My Income Tax Today." It's very catchy.

(SOUNDBITE OF SONG, "I PAID MY INCOME TAX")

DANNY KAYE: (Singing) I'm squared up with the USA. You see those bombers in the sky? Rockefeller helped to build them. So did I. I paid my income tax today.

MAYYASI: (Laughter) I think I prefer Joe's version of trying to make us love taxes.

VANEK SMITH: I don't know. This one is so catchy. I feel like if that music were playing when I filed my taxes, I would feel so much better about filing my taxes.

MAYYASI: Everything, everything is nicer with a little light music in the background.

VANEK SMITH: With a jingle. Jingle - it's, like, a game-changer.

(SOUNDBITE OF ANDREW PETER KINGSLOW AND JAMES KNIGHT'S, "HELLO GIRLS")

VANEK SMITH: We always love to hear what you think of the show. You can send us an email, planetmoney@npr.org. You can also find us on Twitter or Facebook. I am @svaneksmith. And Alex...

MAYYASI: You can find me at @amayyasi. And you can also find a print version if you want to know more about Joseph Bankman and his quest, you can go to priceonomics.com and read all about it.

VANEK SMITH: It's a great piece. Go check it out.

And if you're looking for another podcast listen to, NPR's Embedded is back. Host Kelly McEvers is taking an in-depth look at police videos. And this week's episode gets into an officer's mind. You can find the new episodes on NPR One or wherever you get your podcasts.

Today's show was produced by our very own first-time U.S. taxpayer, Elizabeth Kulas. Thank you, Elizabeth. Also special thanks to Larry Zelenak. And Alex, thank you for bringing us the story.

MAYYASI: I'm glad we could tell everyone about Joe Bankman, the tax hero.

VANEK SMITH: I'm Stacey Vanek Smith.

MAYYASI: And I'm Alex Mayyasi. Thanks for listening.

(SOUNDBITE OF ANDREW PETER KINGSLOW AND JAMES KNIGHT'S, "HELLO GIRLS") Transcript provided by NPR, Copyright NPR.