Tax Lawyer's Blog

The debate about the proposed regulation of unenrolled preparers continues with a new entry by top-notch tax blogger Joe Kristan titled Preparer Regulation: Lessons on Barriers to Entry.

Joe finds it revealing that tax preparation giants H&R Block and Jackson Hewitt strongly favor taxpayer regulation and concludes that they do so merely because they want to suppress competition:

The big franchises will run their trainees through a cookie-cutter course geared to the IRS test, and perhaps even be allowed to test their own employees. After all, we can trust franchised return preparers to adhere to the highest standards.

Meanwhile, independent would-be preparers will have to study themselves and take any required tests at the always user-friendly times and places designated by the IRS. The net result is a barrier to entry to competitors for H&R Block and Jackson Hewitt, allowing them to get more business and raise their prices.

Will the public get a better value for the higher prices? I’m guessing that “increased prices” motivates the big franchises more than “better product.”

I agree with Joe that taxpayer regulation will decrease competition and that preparers who are confident that they’ll be able to comply with the new regulatory requirements will welcome such regulation. But the fact that some folks will benefit from reduced competition and others will not is not a good enough reason to just let anyone into the profession.

The purpose of tax preparer regulation is to reduce the number of incompetent and unscrupulous preparers. Consequently, competent preparers will of course benefit from it. The goal of all regulatory/licensing regimes is to benefit those who meet certain pre-determined standards and exclude those who do not.

Joe’s argument could be applied to all professions and all regulatory regimes. For example, CPAs who have met the requirements of their licensing regimes benefit when that licensing regime prohibits the practice of accounting by those who have not met the requirements. And medical doctors benefit when their licensing regimes create barriers to entry for those who have not met the requirements. The same holds true for engineers, stockbrokers, nurses, electricians and plumbers.

Would anyone seriously suggest that we eliminate the regulatory regimes for these professions because their existence benefits those who comply with the regulations? You might as well argue that because Tiger Woods regularly scores lower than his competition and thereby benefits by winning more golf tournaments we should stop judging golfers by their low scores.

Fairness disclosure:

Morris M. Kleiner is the author of Licensing Occupations: Ensuring Quality or Restricting Competition (book cover pictured) and he seems to agree with Joe:

While other labor market institutions have been in decline for decades, occupational licensing has grown dramatically. This is the product of the great benefits that licensing brings to both license-holders and the government. Members of a licensed occupation benefit because they increase the perception of quality and thus the demand for their services, while at the same time they restrict supply. Government officials benefit from the electoral and monetary support of the regulated, as well as the public image that they are protecting consumers. However, for the public, occupational licensure has many costs and few benefits.

The debate continues.

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