T he Biden administration is constructing across the government a latticework of paternalist policies that would not only make big government a permanent feature of American life but also stamp out any private-sector efforts to help ordinary Americans deal with the Leviathan state.
Consider tax preparation. (Full disclosure: I’m an enrolled agent and have run my own D.C.-area tax-planning practice since the early 2000s.) During the most recent tax-filing season, the IRS ran a pilot program called “Direct File,” which allowed taxpayers to file a return without using private-sector software or a third-party preparer. The IRS had no authority to do this. Congress appropriated $15 million for the IRS to study a direct-filing program, and IRS Commissioner Danny Werfel repeatedly assured congressional tax-oversight committees in 2023 that studying it was as far as the agency would go. In fact, the IRS was coordinating in secret with consultants the whole time to make Direct File go live in the spring 2024 tax season.
As a result, the IRS was effectively the tax preparer for 140,000 taxpayers last spring, which cost them a total cost of $31.8 million (more than $227 per tax return: more than double the “premier” edition of TurboTax and far in excess of the basic, $50 software version most of these taxpayers could have used). Direct File not only competed with storefronts such as H&R Block and software companies such as Intuit, it also undermined the IRS’s own very successful Free File program, which has been around for well over a decade and allows taxpayers with incomes less than $79,000 (the overwhelming majority of filers) to select a private-sector tax-software provider from the IRS website to file a free federal income-tax return. Some software companies in Free File offer free state income-tax returns for some or all states, while others charge a modest state fee. Free File companies are prohibited from offering bank products like refund-anticipation loans.
The IRS announced in May that it would make the new Direct File program permanent (as if there were any doubt that the pilot would be deemed successful by its own booster) and expand it to all states and more complex returns. Over time, we can expect the IRS Direct File program to include more and more eligible taxpayers, killing off, first, the Free File program and then any private-sector tax-preparation competition. If the Biden administration gets its way, most of my fellow tax preparers will likely cease to exist.
Why would this be a bad thing? The IRS has a conflict of interest when it acts as both tax collector (seeking to maximize tax revenue collected) and tax preparer (seeking to minimize legal tax liability for the client). It cannot serve two masters, and there is no doubt which side of the conflict the IRS would come down on. Only a third party or independent software program would keep the taxpayer’s interest front of mind. With Free File, currently, almost all taxpayers can get such advice for free or at very low cost.
The Biden administration’s paternalist policies are even going after companies that help veterans secure the benefits they have earned by serving in our nation’s military. Just like the IRS, the VA is also trying to corner the market on advice. Conservatives believe that taxpayers ought to be able to avoid paying more in taxes than they are legally required and presumably are not interested in getting chintzy with war veterans. Yet that’s exactly what the Biden administration is seeking to do.
The Veterans Administration (VA) is a famously complex agency for veterans to navigate. Yet they must rely on it to get their promised benefits after a career of honorable military service. Over the years, the VA has recognized a set of veterans’ service organizations (VSOs) that can help veterans file claims. In turn, VSOs have come to enjoy a cozy “iron triangle” relationship with the VA, which, over time, has created a potential conflict of interest between the desire of the VA to conserve money and the rights of the veterans to obtain the benefits promised them.
In recent years, private-sector competitors to the VSOs have sprung up to offer alternative — they would say superior — advice to veterans. These companies are staffed with experienced hands who know how the VA bureaucracy works. Many of them offer faster turnaround for veterans’ claims, requiring fewer appeals, and they result in higher customer ratings. The VA and its friends, the VSOs, are not too happy about this private-sector competition and are trying to shut down any company not in the VSO “club.”
Many of those who work or volunteer with VSOs have a variety of tasks, meaning they don’t solely focus on helping a veteran file his or her disability claim. Because there aren’t enough VSOs to satisfy the uptick in demand that has come after the passage of the PACT Act in 2022 (which expanded VA coverage for those who suffer from the effects of burn pits and Agent Orange), veterans often complain of inadequate help or delayed or no responses from VSOs. Newer and more competent companies have an incentive to outperform their VSO competitors, and this has resulted in more veterans receiving the benefits they’ve sacrificed for. The VSOs have alienated potential new members (younger veterans) by refusing to adapt or evolve. Their stagnant membership and the VA’s ballooning budget have magnified the incentives to eliminate the competition. If private consultants and their provably superior results are pushed out, the VA wouldn’t have to pay out as much in disability benefits and VSOs would gain members purely because veterans would have no other option.
The latest frontier in the Biden administration’s nationalization of the private sector is housing and mortgages. On April 16, 2024, Freddie Mac (a government-sponsored enterprise) proposed a rule that would allow it to purchase and guarantee 20-year home-equity loans in instances when the company already owns the primary mortgage. According to the American Action Forum, up to $1.5 trillion in such loans is currently owned by the private sector and could be nationalized by Freddie Mac.
People use home-equity loans to make home improvements, consolidate credit-card debt, buy cars, and finance college tuition and weddings. Normally, a borrower who seeks to tap equity would have to refinance the entire amount of his loan, giving up the initial (presumably lower) interest rate in exchange for a loan with a much higher one. The goal of the proposed rule is to allow Freddie Mac, which is for all intents and purposes a government agency, to gobble up much of the home-equity-loan market. It would do so by allowing borrowers to keep their primary mortgages, many of them obtained during and after Covid with 2 to 3 percent interest rates, and tap their remaining equity for up to 80 percent leverage on the home. Private-sector lenders would not be able to compete with cheap Freddie Mac loans that are backed up implicitly by taxpayer-funded government bailouts.
This would be very reminiscent of the cheap, government-subsidized mortgages that led to the 2008 housing crash. Lenders shoveling out mortgage loans to less than qualified borrowers created a housing bubble that ended up costing taxpayers trillions of dollars. This new proposal is based on similar premises. Americans would be encouraged by government policy to take on more debt, which would increase the risk of their not making their mortgage payments at all. Meanwhile, more-responsible lenders in the private sector would be crowded out (just like tax preparers, tax software, and non-VSO veterans’ counselors). Private-sector lenders allow the market to properly price risk. If someone is not a good candidate for a mortgage, or a second mortgage, he’s unlikely to get one. And that’s a good thing — it reduces the risk of default. In the event a borrower does qualify, basic underwriting allows risk to be priced into the interest rate, the term, points, and all other market mechanisms that have evolved over time.
The Biden administration wants the government to take over every aspect of citizens’ lives, eventually, under the guise of “helping” us. It would “help” do our taxes by letting the IRS essentially do them for us. It would “help” veterans by protecting them from advice that comes from outside the captive VSO world. And it would “help” homeowners by subsidizing risky debt. The price for all this, of course, is the superior counsel and advice found in the private sector, which would be stamped out by the boot of the state.