What's the point of preventing high-earning taxpayers from using CalFile (tax preparation program/service of the California Franchise Tax Board)?

Question

I read that CalFile (tax preparation program/service of the California Franchise Tax Board) does not accept taxpayers with an income above some threshold. Why banning them from using CalFile?

Answer 1

I am not a tax lawyer, nor do I play one on TV.

However, I noticed that the link in the question lists some very specific thresholds, such as $237035 for a single income. The great thing about such specific numbers is that they are unlikely to occur randomly in documents. Therefore, just throwing this number into Google brings up several tax-related documents from California. [Note: Google Search has been personalized for ages now, so there is no guarantee you will get the same results I do. But it is likely you will find documents relating to California tax law.]

The problem seems to be related to something called Tax Exemption Credits, as mentioned in 2023 Instructions for Form 540 – Personal Income Tax Booklet or 2023 California Tax Rates, Exemptions, and Credits in Spidell's California Taxletter – October 2023.

Apparently, these Tax Exemption Credits are being phased out, and as your personal income goes above $237035 (for single income, other limits apply in other circumstances), the credits get reduced by a certain amount.

It also appears this is dependent on the inflation rate and was only determined towards the end of 2023.

So, it is conceivable that the developer of the CalFile program simply did not finish the implementation of those rules in time. Or, there is a bug in the software which couldn't be fixed in time. It is also possible the development contract had already finished by the time these decisions were made.

This would not surprise me at all, especially given the abysmal track record of government-contract software development. Some infamous examples are the FBI Virtual Case File or the first launch of healthcare.gov. In Germany, the introduction of the mandatory highway toll for heavy trucks was a total disaster, as is the digitalization of health care right now. And in the UK there is the Post Office Horizon scandal, which is especially tragic because more than 900 people went to prison and at least 4 even committed suicide for "stealing" money that, it turns out, was simply mis-calculated by buggy software.

So, basically: government software development contracts by and large seem to go wrong, so it would not be surprising if that were the case here as well.