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They also know precisely how much we owe in taxes, but instead of telling us and we pay it, they allowed a multi billion dollar industry to pop up around it and dictate tax law.
That's not entirely true.
Not an US citizen. And in my country tax returns are certainly easier than the US. And our country also have a system in which people below certain money can just go to the tax agency and a government employee will do your tax return for you. But it cannot be fully automated, as the government doesn't actually know 100% what do you own.
When they send you letters after asking for things is for you to give them paper documentation on why you deducted some things, or because they are inspecting some things a your deduction raised a flag. But it's not like they just know precisely how much everyone should pay. If it were that easy tax returns would not be a thing as it is in most of the world.
They know my tax liability based on the income reported to the IRS by my employer - but you're right that something they don't necessarily know is the variety of valid deductions you might be eligible to take. Part of the process of filing is also calculating your tax liability though - and that part of it they know precisely and rather than TELLING you, you're expected to determine your own liability and heaven help you if it's wrong.
Well, that's bad then.
Where I live its true that that part of the tax refund is already filled by our IRS equivalent. We have to fill the income that they don't know about, and our deductions, which can be quite complex.