Wednesday, July 20, 2011

Regulation as TurboTax - Some Formative Ideas

There's nothing like getting ahead of yourself in the thinking. Yesterday in one of my regular stream-of-consciousness-what-if sessions, I started to feel sorry for the folks at Intuit, the folks who make TurboTax. I've used TurboTax to do my Federal taxes, seemingly forever. (Way back when I used MacInTax, so it's got to be close to 15 years using this sort of product.) Anyway, it occurred to me that if the Gang of Six plan actually passes and we get tax simplification, then it might be that many taxpayer won't need software like TurboTax. They'll simply use the government provided Web form for the data entry they need to do and voila. That's what I do for my State of Illinois return. But the Federal Return is too complex for that at present. Being able to pull information from last year's return speeds things up. Things do change from year to year, but not that much. In terms of the time saved, the software pays for itself many times over. So I like the product for what it does. It would be a shame for a company like Intuit that does a good job with its product to take a significant capital loss, not due to anything it has done but rather because the law has changed. As I said, that's getting ahead of things. But doing that some of my internal wheels start to spin and I get a spark of an idea.

Before getting to it, let me talk about two recent experiences that I think are relevant. The first has to do with being hired back by the University of Illinois to teach this past spring after having retired the previous summer. For reasons I don't understand, it appears that work records for me were purged when I retired. So I had to go through the new hire process, even though I had worked for the University for 30 years. The new hire process is extremely clunky. When I hear politicians talk about burdensome regulation, the new hire process comes to mind. Part of the issue is to verify that I am who I claim to be. So suitable ID needs to be provided. Once that is done, a bunch of bio information needs to be collected. In my case, the retirement system SURS has all this information and the State of Illinois Tax System has much of it, but the University has no mechanism to tap into those sources. So it does all this from scratch. (Fortunately for me, I kept email and Library access, so the process for me was a little shorter than for those who really are new hires.)

The other experience resulted because Carle sold out its pharmacy business (Carle RX) to Walgreens. This meant I needed a new way to renew my prescriptions online. So I had to set up a Walgreens account. They too have to make sure I am whom I claim to be. I don't completely recall the process I went through, but I believe I must have supplied them with a credit card number, because then I had to answer a few questions about where we used to live on Old Church Road. On two out of three of the questions I knew the answers. On the third I guessed. (We use to own a Ford Windstar as the family vehicle, but since then we had a Honda Odyssey and now have a Honda Pilot, which we've had for almost five years. The question was about the model year of the Windstar.) The entire thing took just a few minutes and then my account was created and I ordered my renewal prescription.

From comparing the two experiences, the conclusion is that mainly its not about the regulated activity itself that makes it onerous, but rather its about how the regulation is implemented. And on the implementation front, government provision has a tendency to be clunky because the focus is purely on data collection and not ease of use. The market makes easier to use alternatives because, after all, customers can take their business elsewhere and ease of use matters to get a successful product.

So the idea is to encourage embedding regulation that affects small business into software for doing back office function. Intuit make Quickbooks for small businesses. I've not used it, but I've briefly looked looked at the Website for the product, which advertises that it helps in doing invoicing, tracking expenses, and preparing for taxes. It does not, however, mention non-tax regulations - environmental, human resources, etc. I don't understand why. What would it take for that to happen? The regulations would have to be written and implemented in a way that enabled such embedding. In turn , the providers of such business software could impose de facto standards on the way regulations are implemented, so the providers could incorporate the regulations into their products.

The related issue regards what sort of information business would like to keep track of for their own well being versus information that they only monitor because they are required to do so. If you think of effective regulation primarily as education and then suitable modification of the culture to accommodate the knowledge, this suggest that the software providers can act as middlemen to advocate for where regulation is headed. This assumes that these providers are regularly modifying their products to accommodate emerging business need. Effective regulation should be part of that process, not outside it. This is different than arguing for laissez-faire, which it seems to me is increasingly a know-nothing approach. It is, rather, and argument for regulation lite, by better situating the regulation into the environment businesses actually operate in.

I wonder if others might think this way. After the raising debt ceiling issue is behind us, what else will there be to think about?

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