Happy tax season to all who celebrate! Which is (or should be) everyone. But as you strive to do your civic duty (under penalty of perjury) ponder this:
Just 2.4% of the 104 million US taxpayers eligible to use the IRS Free File Program did so in 2020. And more than 14 million of the lowest-paid Americans may have paid unnecessary commercial fees to file their 2019 taxes.
Why?
The Treasury Inspector General for Tax Administration, which compiled these figures, blames “the complexity, confusion, and lack of taxpayer awareness about the operation and requirements of the Free File Program.”
A blunter response would blame the power and proliferation of Leech Brands.
Leech Brands help citizens comply with (or expedite) government regulation, legal obligation or commercial chaos. In so doing, they can provide a valuable, even vital service. But while they deploy the language of official assistance or neighborly aid, they are neither inevitable nor charitable. Indeed, most Leech Brands have a vested interest in maintaining a tainted status quo — or degrading it.
Which brings us back to tax.
First, a brief history. In 2002, the Internal Revenue Service established the Free File Program with a consortium of 17 tax-preparation companies who agreed to enable the lowest-income Americans to e-file their taxes for free. (In 2022, anyone earning under $73,000 was eligible.) In return, the IRS pledged not to compete in the commercial market for tax preparation and filing. The effect was to force the poorest e-filers to interact with a commercial entity to access the free-file system.
Two decades on, despite several amendments to help taxpayers, the Free File Program looks more and more like a bust. Even at its 2005 peak, only 6.4% of eligible taxpayers used it; in 2022 the rate was 4%. And, as noted, millions of poorly paid Americans may be paying unnecessary fees.
To understand what went wrong, we can turn to ProPublica, which in October 2019 published a remarkable exposé headlined: “Inside TurboTax’s 20-Year Fight to Stop Americans From Filing Their Taxes for Free.”
According to ProPublica, Intuit used the Free File Program to inveigle its TurboTax product into the mainstream, after which it deployed a range of tactics to divert taxpayers from free to fees — including coding its website to hide the Free File page from search engines, and lobbying to prevent the IRS from entering the market.
Then, in 2007, Intuit launched the “Free Edition” of TurboTax, which it aggressively advertised as “Free, Free Free Free” — as in a 2022 Super Bowl spot, which uses the word “free” some 17 times in 30 seconds.
But, as ProPublica alleged: “unlike the government program, this one comes with traps that can push customers lured with the promise of ‘free’ into paying, some more than $200.” Prodded by ProPublica’s reporting, a coalition of state attorneys general filed a lawsuit against Inuit which, in May 2022, the company settled: Intuit admitted no wrongdoing, stating that it agreed to pay $141 million in restitution “to put this matter behind it.”
In July 2021, Intuit withdrew from the IRS Free File Program, “to better serve the complete financial health of all Americans.” But the company’s troubles may not be over. In March 2022, the Federal Trade Commission sued Intuit, stating: “TurboTax is bombarding consumers with ads for ‘free’ tax filing services, and then hitting them with charges when it’s time to file.” Intuit called the FTC complaint “an incomplete and inaccurate story of Intuit’s efforts to provide and advertise free online tax preparation.”
Sitting at the confluence of complexity and compulsion, taxes provide the quintessential Leech Brand location. As ProPublica noted:
Americans’ anxiety around tax filing is so powerful that it usually trumps any frustration with the TurboTax product … So even if customers click on “free” and are ultimately asked to pay, they will usually do it rather than start the entire process anew.
Tax doesn’t need to be taxing. According to the Tax Policy Center, “at last count, 36 countries, including Germany, Japan, and the United Kingdom, permit return-free filing for some taxpayers.” So why the American exceptionalism? According to an OpenSecrets analysis, “Intuit has spent more than $41 million on lobbying since 1998” and “has enlisted dozens of ‘revolving door’ lobbyists … including multiple former members of Congress.” No one said leeching was free.
But while TurboTax may be an apex predator in the Leech Brand swamp, it is not hunting alone.
Flee the Unfriendly Skies
Various forces combine to make air travel a hot zone for Leech Brands:
· The dystopian confluence of security, immigration and customs
· The byzantine benefits of air miles and tier-point hierarchies
· The haphazard inefficiency of airport infrastructure
· The prioritization of capacity over comfort in plane and airport design
· The high prevalence of flight anxiety (40%) among the population, including those who suffer from intense aviophobia (6.5%)
And so the leeching lure of a business- or first-class ticket is as much about escaping the bedlam of check-in, security and overhead-bin fights as it is about paying for bearable legroom or “free” drinks. As Virgin Atlantic boasts of its Heathrow Airport Upper Class Wing: “It’s like having your own private airport … It’s queue-free and totally A-List.”
Back in economy, passengers can pick from an a la carte menu of leech fees for such luxuries as easy boarding, carry-on bags, snack and drinks, seat selection and sitting next to their children. (In 2009, Ryanair’s CEO mooted charging £1 to use the onboard lavatory, later clarifying his motive was not cash but capacity: “With six extra seats I can lower everyone’s airfare by another 5%, all year round.”)
It’s no accident that the most elegant, spacious, clean and well-lit public part of any airport is its Duty Free — through which captive passengers are obliged to wend (curving pathways boost spend) to reach the insufficient seating and price-gouging restaurants in the departure hall.
And any doubt that “the pandemonium is the product” should be banished by Delta’s 2019 creation of “branded boarding” — a ten-step caste system built on the company’s trademarks.
It’s hardly surprising, then, that airports have reported a suspicious increase in passengers requesting (queue-jumping) wheelchair assistance — a trend exacerbated by anti-social “travel hacks."
One consequence of air travel’s ingrained friction is to encourage novel Leech Brand markets, including:
Luggage shipping · Sherpr, MyBaggage, SendMyBag, Luggage Forward and Lugless — whose slogan sums up the mindset: “Skip the stress. Ship your luggage.”
VIP Concierge Services · Alpha Priority, Perq Soleil and Royal Airport Concierge pledge to leapfrog the chaos with curbside greeting, expedited check-in, fast-track security, lounge access, escort through terminal to departure gate, flight monitoring, luggage connections and assistance with VAT refunds.
Private lounges · In addition to individual airlines, airport lounges are offered by an increasing number of pay-per-use brands (Aspire Lounges, Plaza Premium Lounge, No.1 Lounges) and credit card companies (American Express, Chase Sapphire, Capital One). These in turn are aggregated by various access platforms (Priority Pass, Lounge Pass, Lounge Buddy).
However as post-pandemic travel picks up, long queues, waitlists, restricted hours, poor service and parsimonious guest privileges are souring the lounge experience. One solution is to opt out of the opt-out by paying $4,850 for annual membership to the P/S “private luxury terminal” at Los Angeles Airport, which entitles you to use the private salon for $695 per passenger per visit, or book a private suite for $3,450 — “Welcome to a new way of travel.”
Air travel’s most interesting Leech Brand emerged in the wake of 9/11— when airport security ramped up, and long lines ensued. Now, for $189 a year, members of the Clear Plus program can scan their eyes or fingerprints to create a queue-skipping security profile that allows them to breeze past even those who have paid ($78 for 5 years) to enroll in the US government’s TSA PreCheck scheme. (Clear says it doesn’t perform the actual screening, only the verification of identity.)
The lure of Clear is easy to see, especially for frequent fliers on tight schedules. But allowing a private company to fast-track screening is not just a notable commercial encroachment into homeland security. According to documents obtained by OneZero, Clear typically pays its partner airports 10% to 12% of its sign-up revenues, which in 2019 totaled $35 million. Improving airport efficiency is surely tough enough without Leech Brands offering financial incentives to keep queues long. And airports are just the start. Clear has ambitions to insert itself into stadium and event access, age verification, health passes and digital vaccine proof (services that are all currently free). “You are you wherever you go,” says Clear’s CEO — but only if you’ve enrolled with a private biometric company. Once you start leeching, it’s hard to stop.
Travel’s Testing Times
Covid created an undreamt-of opportunity for diagnostic companies to become Leech Brands — notably when consumer testing became a legal requirement for international travel.
Often this requirement forced passengers to navigate a “rip-off jungle” of cowboy companies and gouging prices. And occasionally it meant submitting to intense nasal indignity: In September 2022, for example, visitors to Hong Kong were spared the horrors of three-week hotel quarantine at the cost of taking up to four PCR and eight rapid antigen tests.
The total financial burden of consumer travel testing is hard to assess. According to the Evening Standard, passengers flying into the UK from the European Union between May and September 2021 spent some £1.1 billion on mandatory pre-departure tests. Extrapolate this fleeting local sample across the global span of pandemic travel, and the cost of test taxation is startling.
However, it’s illuminating to track how Covid’s accidental Leech Brands have responded to a post-testing world. A number of diagnostic companies have scaled back, and some have filed for bankruptcy. Others have attempted to pivot. Take Randox Laboratories Ltd which became a UK high-street feature for pre-departure, on-arrival and test-to-release services that “facilitated 8.8 million individual plane journeys during the pandemic.”
Now that such diagnostics are no longer (as) mandatory, Randox is moving vigorously into general healthcare — hoping that consumers have developed a taste for testing that extends beyond Covid’s legal obligations to voluntary tests for training, female health and “the power to extend your life.”
Suction and Suckers
While taxes, air travel and Covid testing are three of the most obvious Leech Brand locations, leeching’s suction is felt in many sectors — from dubious lenders promising debt relief to click-bait hustlers inserting themselves into government visa applications.
Take third-party meal delivery platforms. One can argue whether paying $39.12 for a $13.75 McDonald’s order is value for money, but the 184% delivery markup is a clear consumer choice. Things become leechy when delivery apps abuse their power over restaurants not simply by extracting exorbitant commissions, but through such dubious tactics as listing restaurants without their consent; falsely claiming exclusive relationships; frustrating attempts to quit their platforms; and diverting orders to doppelgänger “ghost kitchens.”
Eager to fend off third-party leeching, many big businesses strive to trap their users inside proprietary leech-fee loops. For example:
· Big Tech resisting the “right to repair”
· Software companies replacing final sales with recurring subscriptions
· Physical products that require online activation and personal data-sharing
· Household appliances forcing the use of proprietary filters/ink/coffee
· Businesses clinging to non-competes
· Unions clinging to closed shops
· Data hoarders fighting to defang privacy laws
· Crypto bros lobbying for regulatory moats to stifle competition
Even when companies campaign for consumer tax cuts, it can be leeching in disguise. In May 2020, for example, the British government scrapped the 20% VAT sales tax on e-books, after the publishing industry argued “people who buy them would benefit from lower prices.” However, according to a 2023 analysis by Tax Policy Associates, “consumers did not in fact benefit from lower prices — publishers retained the VAT saving for themselves, costing the country £200m.”
In his latest State of the Union, President Biden fumed that America “pays more for prescription drugs than any nation in the world,” and attacked the cost of a substance vital to 8.4 million citizens:
Insulin has been around for over 100 years. The guy who invented it didn’t even patent it because he wanted it to be available for everyone. It costs the drug companies roughly $10 a vial to make that insulin. Package it and all, you may get up to $13. But Big Pharma has been unfairly charging people hundreds of dollars — $4 to $500 a month — making … record profits. Not anymore. Not anymore.
In the same speech President Biden hailed his Junk Fee Prevention Act designed to tackle “hidden surcharges” such as bank overdraft charges; credit card late fees; hotel “resort” fees; service fees for event tickets; fees to switch cable, internet and cellphone providers; and various airline fees, including charging parents to sit next to their kids.
“Americans are tired,” he said. “We’re tired of being played for suckers.”
We shall see. According to OpenSecrets, “the top 2020 beneficiary of individual contributions from Intuit affiliates … was President Joe Biden.” Which brings us back to tax.
April Is the Cruelest Month
In 1997, America employed 48,080 tax preparers. By 2021, notwithstanding the intervening internet revolution, the ranks had risen to 83,190. (Both totals exclude accountants and auditors, of which America has now over 1.3 million.)
According to the American Action Forum, in 2022 Americans spent 6.5 billions hours and $209.7 billion navigating a Tax Code that runs to some 6,871 pages (or 75,000 pages if you count the accompanying regulations and guidance). And of the 73 million taxpayer phone calls to the IRS during the 2022 filing season, only 10% reached an IRS employee.
It is any wonder that Leech Brands smell blood?
In 2017, President Donald Trump promised that many Americans would soon be able to file their taxes on a one-page postcard, saying that “the only people that aren’t going to like this is H&R Block.”
In 2007, Senator Barack Obama pledged: “When I am President we will put in place a system where 40 million Americans with a job and a bank account who take the standard deduction can do their taxes in less than 5 minutes.”
And in 1985, President Ronald Reagan said: “We envision a system where more than half of us would not even have to fill out a return.”
But the ball is often in the government’s court.
Operating at the intersection of complexity and compulsion, Leech Brands flourish where there is too little regulation — or too much.
No one ever wants to pay a Leech Brand, and in a perfect world they wouldn’t exist. Indeed, the proliferation of Leech Brands is a useful barometer of any system’s inefficiency, incompetence and corruption. Many who sneer at the bribery, baksheesh and cash backhanders of more turbulent cultures assume that a “well-regulated free market” is above such graft. But is there any fundamental difference between paying a “fixer” to skip a security queue and paying a government-sanctioned private company? And what’s the deeper systemic and social impact?
So, the next time you fork out to expedite a legal obligation or vault a bureaucratic hurdle, ask not what “fast track” can do for you — ask what’s in it for the “fast track” leech.
This article was provided by Bloomberg News.