A Billion's Not That Much

The local sports-talk radio station is running a bunch of commercials from a tax prep service in which a loud announcer declares that "People who did their own taxes left one billion dollars on the table last year. That's billion with a 'b.'" and urges people to "Get your billion back!" by paying for their tax-return service. Which, you know, sounds like quite a bit.

Only, there are upwards of 300 million people in the US. So, a billion dollars is about $3 per person. So, it's maybe not as impressive as they want you to think.

Of course, a lot of those people are too young or too old to be filing tax returns anyway-- that probably reduces the population for the per-capita figure by around a factor of two, so $6 per working adult. And, of course, half of those folks (47%, famously, but we're going back-of-the-envelope here) don't pay federal income tax, so we're up to $12.

Then there's the question of how many people did their own taxes, which is a little tricky to answer. Obviously, the extremely rich have people to do their taxes for them, but they're only a few percent of the total. I'd be kind of surprised if the fraction of tax-paying adults who used a tax-prep service was even 50%, but let's take that as the figure, bringing the average taxpayer's share of those unclaimed tax benefits to a princely $24. $48 for a two-income family. That's not nothing, granted, but I bet it's also not a lot more than it costs to pay these folks to do your taxes for you...

Thus ends today's lesson about how knowing a bit of math makes advertising claims much less impressive.


(Now, of course, that $1b isn't going to be evenly distributed-- lots of folks at the low end are already getting everything they can; it's really the people at the upper end of the taxpaying-but-not-paying-a-tax-service block who are being targeted, and those people probably stand to make well above that average. Still, we're not really talking vast sums of money for individual taxpayers, which makes the ad creepy and deceptive along with loud and annoying...)

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On the other hand, 9.2 quintillion is a lot. But even sports folks, who presumably know something about odds, are repeating it as if they genuinely believe that every game in the NCAA tourney is a 50-50 tossup. If you simply assume the 1-16 and 2-15 games are locks for the higher seed, you're down to 1 in 36 quadrillion. Quite manageable! Although, in comparison, the $1b that Warren Buffet is offering is still not that much.

If you're filing the 1040A or 1040EZ, it makes sense to do that yourself. You get a few standard exemptions and deductions, and that's all, folks. Conversely, if you're a rich person with lots of investments, hiring an accountant to do your taxes is a no-brainer, because he'll easily find enough deductions to cover his fee, and he will tell you exactly what records you need to keep (if he's not keeping them for you, which is likely if you are in the 0.1%) so that you can take those deductions.

This ad is targeted at the in-betweens: people with moderately complicated tax situations, but not so complex that a layman would have no hope of figuring it out. I'm in that category, and if you and Kate do your own tax returns, so are you. But TurboTax, which is what I use, is already reasonably good with tax situations like mine. I can envision circumstances where I would be better off going to an accountant (e.g., if I move and turn my current house into a rental property), but historically and for tax year 2013, TurboTax is good enough.

Side note: Why do so many ad people make their ads annoying? You want people to look at (or listen to, if it's a radio ad) your ad. I can't comment on the specific commercials you are hearing, but many of the ads I have been seeing on web sites for several years are visually repellant to me, and the radio ads I've heard aren't much better ("Call 1-800-URA-SUKR now! That's 1-800-URA-SUKR. 1-800-URA-SUKR."). I won't name any specific examples, lest the perverse algorithm of Google AdSense serve up the ad in question, but you've probably seen some of them, too.

By Eric Lund (not verified) on 24 Jan 2014 #permalink

There is some double counting here (not that it matters for the point of the post.) The 47% includes people who people Chad says "too old to pay taxes." About half or so of the 47% were seniors living on Social Security.

I think giving me a candy bar with a dollar bill taped to it was a more effective advertising campaign.

Not effective enough, mind you. But more effective.

By John Novak (not verified) on 24 Jan 2014 #permalink

Figure that there are, roughly, 330 million people in the US $1x10^9 works out to about $3 per person. No, not too awful much.

OTOH, the real decider of what is, or is not, too much to pay is not the price but what you get for your money. The presumption, one of the right-wing dog whistles, is that money given to the government is always wasted. That assumption is GOP boilerplate despite the actual evidence that many government programs are more efficient, in terms of both throughput versus overhead and outcomes. But evidence, true to form, has no impact on ideology held as an article of faith.

Sure, if you're so ideologically anti-government that you'd rather throw away $50 than give the federal government $12 to "throw away" and keep the other $38. Put it that baldly--do you hate the feds enough that you'd burn $38 of your own money to spite them?--I think most people would see that this is not in their own interest. If you think they're spending any of it efficiently, well, "Would you burn $38 of your own money so that another $12 could go to a tax preparer instead of paying for road repairs or veterans benefits?" [I'm picking programs that appeal to the sort of people who like to believe that food inspection is a waste of money.]

The commercials are by HR Block, not Intuit/TurboTax, just to clarify.

HR Block desperately wants your business because last year, for tax year 2012, they did not update their systems per IRS specifications, and most tax returns filed with the Education Credit / Form 8863 passed bad data to IRS. They (HRB) hemmed and hawed for a while, while taxpayers blamed the IRS, until HRB 's CEO/President admitted they were at fault. Facebook and other social media sites blew up last year, a lot of people waited several MONTHS for refunds that normally would take 3 to 4 weeks. A lot of them vowed never to use HRB again, wonder if they will or not?

A fair number of the people who pay no net federal income tax do so because of the earned income tax credit.

I think something like 20% of people eligible for the EITC fail to claim it (shocker: poor people aren't the best at navigating bureaucratic paperwork).

By Jeff Fisher (not verified) on 04 Feb 2014 #permalink