California's "ReadyReturn" Filing Program Could Trap Taxpayers, Citizen Group's Study Warns

(Alexandria, VA) -- It's being touted as a way to make income tax filing easier, but California's state-funded "ReadyReturn" program is a boondoggle, not a bargain, for taxpayers: that's the conclusion of a new study from the National Taxpayers Union (NTU), a non-partisan citizen group with 350,000 members nationwide and more than 51,000 members in California.

"ReadyReturn is proving to be a concept not even worthy of its own name," said NTU Policy Analyst and study author Jeff Dircksen. "The program is neither ready for broader application to the tax filing population, nor will it return many discernible benefits to taxpayers."

This year California's Franchise Tax Board (FTB) initiated a test program in which 50,000 taxpayers were sent government-completed tax returns based on previous filing and income data. The recipients may then sign and accept the return, make adjustments, or file their own taxes. But according to Dircksen, who formerly served as a revenue policy analyst with the Commonwealth of Pennsylvania, the FTB's ReadyReturn scheme is not the model of simplicity and convenience that officials would have taxpayers believe it is. Aside from a paltry 3.6 percent participation rate as of mid-March, other problems plague the program:

  • Not a "Free" Service. ReadyReturn's cost ultimately falls on taxpayers because the taxpayer-funded FTB prepares the returns. These resources could instead be committed to providing relief from the state's notoriously-high income taxes, or for encouraging more electronic filing (which actually saves the state, and taxpayers, $1 for every return processed).
  • Unfair Competition with the Private Sector. The FTB's website alone lists 14 private firms that help prepare and submit returns, eight of which offer some sort of free filing option (not including the state's "CalFile" option). Taken to its extreme, ReadyReturn could lead to "mission creep" at the FTB (such as offering bookkeeping services or estimating tax liabilities). "If other agencies adopted this model, the DMV could arrange auto loans, state wildlife employees could run pet stores, and of course the Governor could freelance as a personal trainer," Dircksen quipped.
  • Bureaucratic Snafus. Since eligibility for ReadyReturn is based on a backward-looking analysis, taxpayers whose personal situations have changed (i.e., marrying, moving out of state, switching to better-paying jobs) might not actually qualify for the program this year. Also, ReadyReturn preparation is based on filing and withholding data, so it will do nothing to prompt compliance from non-filers or under-reporters who are part of the "tax gap" FTB has bemoaned.
  • Less Accountability. If ReadyReturn participation rates do pick up, many taxpayers would be discouraged from maximizing the savings that the laws may allow them under individual circumstances; and, to the convenience of politicians, taxpayers would be disconnected from yet another process that reminds them of the high price they pay for government.

Dircksen suggests that another motive behind the possible expansion of the ReadyReturn program -- to 4 million taxpayers next year -- might be the FTB's own institutional interest. Bigger workloads from the program could justify higher staffing levels and even greater budgets.

"If legislators want to meet Governor Schwarzenegger's call for a 21st Century government, they should replace the state's tax system with a simple, low-rate income tax or broad-based consumption tax," Dircksen concluded. "Otherwise, taxpayers will soon learn a costly lesson: the false luster of the ReadyReturn program hides a bureaucratic desire for more gold from the taxpayers of the Golden State."

NTU was founded in 1969 to work for lower taxes and smaller government. Note: NTU Issue Brief 153, California's ReadyReturn Program: Fool's Gold in the Golden State, is available at