Biden Wants To Resurrect Obama-Era Occupational Licensing Plan for Tax Preparers

Like all licensing schemes, this one will raise prices for consumers, hurt entrepreneurs, and protect the interests of the big guys in the market.

Buried inside President Joe Biden's $1.8 trillion American Families Plan is an attempt to resurrect a failed Obama-era effort to regulate tax preparers.

The renewed push for licensing tax preparers is wrapped around the idea that Americans are defrauded by unprofessional assistance during tax time, even though the administration seems to offer little more than anecdotal evidence that this is a serious problem.

"Taxpayers often make use of unregulated tax preparers who lack the ability to provide accurate tax assistance," the Treasury Department said in a statement. "These preparers submit more tax returns than all other preparers combined, and they make costly mistakes that subject their customers to painful audits, sometimes even intentionally defrauding taxpayers for their own benefit."

That's the same argument that the Obama administration made in 2012 when the IRS unilaterally declared that tax preparers would be subject to new licensing and continuing education requirements. That effort was eventually stymied by federal courts after a group of independent tax preparers sued over the rules with the help of the Institute for Justice, a libertarian law firm.

In that instance, the IRS had bizarrely tried to use a law from the 1880s governing compensation for horses killed during the Civil War to justify the expansive new licensing rules. Both the district court and the U.S. Court of Appeals for the District of Columbia Circuit rejected that idea. The D.C. Circuit said the IRS had tried to "unilaterally expand its authority through such an expansive, atextual, and ahistorical reading" of the underlying law.

But while the courts killed that mechanism for implementing tax preparer licensing, the idea has not died. Sen. Ron Wyden (D–Ore.), chairman of the Senate Finance Committee, has been pushing Congress to consider a licensing scheme for years, and the American Families Plan provides the perfect opportunity to make it happen.

The new rules, which would include fines for anyone caught providing tax help without the proper credentials, would create a huge new barrier for small businesses and entrepreneurs. At the same time, it would further entrench the major tax preparing providers—like H&R Block and TurboTax—as the dominant players in the market, as they would more easily be able to absorb the added costs of getting licensed and following other regulations.

As Dan Alban, an attorney for the Institute for Justice, which helped overturn the Obama-era tax preparer scheme, noted on Twitter, Biden's plan would have the same effect as other occupational licensing schemes: "Raising prices mainly to benefit political insiders."

The White House says the new rules are necessary for "helping many taxpayers claim the newly-expanded credits" that Biden is also proposing in his American Families Plan. But killing small businesses and robbing some taxpayers of their most readily available tax help won't help anyone—except the TurboTaxes and H&R Blocks of the world, of course.

Instead of making the tax code more complex and then using that increased complexity to justify even more complicated regulations on who can help Americans navigate it, the Biden administration ought to try to simplify things so most people don't need such extensive tax help in the first place.