How tax preparer regulation tastes like chicken

October 11th, 2009 by Joe Kristan

To see the future of the tax prep industry if the IRS imposes a new testing and certification regime, go to beakfast with Econlog’s David Henderson in Santa Fe, New Mexico (emphasis mine):

I sat with a woman who runs a Mexican restaurant in a small town in Colorado. We talked about various things, including her criticism of “factory farms” that, in her view and that of many others, are producing unhealthy food.

She was telling me about some chickens she had cooked that are from a small farm near Durango. People had commented on the wonderful aroma and flavor and asked what was special about the dish. She answered that it was simply healthily grown chicken. So I asked the woman, “Didn’t it cost a lot more?”
“Yes,” she said, and I was willing to pay that price they were charging, but here’s the problem. It’s illegal for me to use those chickens.”
“Why is it illegal?”, I asked.
“Because,” she answered, “The chicken farmers raise only a few hundred chickens at a time and they have to get USDA certification. Getting that certification is very expensive and it isn’t worth it for them.”
The light bulb went on for me. I pointed out to her that this is an example of what I called, in my 1976 Ph.D. dissertation on why safety legislation for coal mines did little for safety but wiped out thousands of small mines, “economies of scale in compliance.”
She got it and we both agreed that there are market mechanisms for certification and that the USDA is not needed.

Substitute “H&R Block and Jackson Hewitt” for “factory farms” and “IRS” for “USDA,” and that tells you what you need to know about the proposals for stricter preparer regulation. Oh, and substitute stand-alone preparers and small local shops for the chickens.
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