WASHINGTON — At a time when higher taxes or deeper government spending cuts seem to be the only options available to close the gaping federal deficit, going after more $400 billion a year in uncollected taxes should be a no-brainer. But in the nation's capital, the so-called "tax gap" hardly rates a mention in the official discussion of America's fiscal woes.
[T]he "tax gap" is the difference between the taxes owed and what's actually paid on time. In their most recent analysis, from 2001, the Internal Revenue Service estimated that only about 84 percent of federal taxes were voluntarily paid on time that year, leaving a gross tax gap of $345 billion, or roughly 16 percent, uncollected. Late payments and IRS collection efforts brought in another $50 billion, which cut the net tax gap to $290 billion in 2001. But similar estimates point to a gross tax gap of $410 billion to $500 billion in 2010, said Benjamin Harris, a research economist at the Brookings Institution, a center-left research group.
"You could go a long way toward solving our budget mess by closing the tax gap, but the problem is, it's not easily closed," Harris said.
---"Here's a debt reduction plan: Get billions in uncollected taxes," by Tony Pugh, McClatchy Newspapers Washington Bureau (6.30.11)
Apparently, for a lot of Americans, that sacrifice does not include the simple civic duty of paying their fair and lawful share of the cost to support, maintain and protect the country they claim to love and honor so much. They choose not to honor it, not if it involves this particular patriotic sacrifice, this civic and legal duty.
But why is this "tax gap," this legal noncompliance, "not easily closed"? From the article:
But why is this "tax gap," this legal noncompliance, "not easily closed"? From the article:
In the past 20 years, the U.S. economy has grown more complex, blurring the lines between personal and business income and creating more opportunities for tax scofflaws. Congress limits the IRS budget, and sophisticated tax cheats realize their chances of detection are relatively low. Others say that most who misreport their earnings do so inadvertently because of the complexity of the tax code.
Better, more targeted IRS enforcement could probably cut the tax gap by 10 percent without any fundamental changes to the IRS, Harris estimates. Cutting the gap further would require more thorough IRS reporting, increased tax withholding and more money for IRS enforcement.
But the political will to bolster the feared IRS collection apparatus and turn it loose on American citizens just isn't there.
Surely the rest of us who voluntarily pay our full taxes owed have "the political will" to see it done, don't we? What honest taxpayer likes the idea of bearing the burden of those scofflaws--including many very well heeled scofflaws--who would just rather not? And who are these people anyway?
Whether by willful evasion or unintentional mistakes, businesses and individuals that fail to report, underreport or underpay their taxes cause honest taxpayers to pay more — about $2,200 apiece — to make up the revenue shortfall. That basic unfairness erodes confidence in the tax system, which lowers taxpayer morale and, in turn, increases noncompliance.
The biggest losers are America's wage earners and salaried workers, who pay an estimated 99 percent of their fair tax burden because their taxes are automatically withheld from their pay and reported by a third party, their employers.
But individuals with business income — mainly self-employed, sole proprietors who get paid in cash — misreport roughly 54 percent of their actual income by either underreporting it, or claiming deductions, credits and exemptions to which they aren't entitled. "This is incredible," Harris said. "You kind of feel like a sucker as a wage earner. Here you are paying taxes because someone else is paying you, but if someone else is getting paid on their own, they pay taxes at half the rate."
So, just who is it that doesn't have the political will to support correcting this blatant civic injustice? Who has that kind of authority and power? Why, our legislators, of course--and particularly our Republican legislators (although some Democrats, too, have been counted in the effort). Small businesses and the self-employed are a key constituency, after all.
"The government could close the tax gap entirely by putting IRS agents in every family's living room and in every small business. But this is a price that a liberty-loving people and their representatives are rightly unwilling to pay," said Sen. Orrin Hatch of Utah, the senior Republican member of the Senate Finance Committee, which helps write America's tax laws.
But House Republicans, spurred by the anti-tax sentiment of tea party activists, voted to cut the IRS budget by $600 million in fiscal year 2012, citing the need to cut the budget deficit. IRS Commissioner Doug Shulman told lawmakers that the proposed GOP cuts would cause tax collections to fall by $4 billion because they'd require slashing the agency's enforcement budget.
But Curtis Dubay, senior tax policy analyst at the Heritage Foundation, a conservative think tank, said Shulman was simply "posturing" to preserve IRS funding. Strengthening IRS enforcement is a mistake, Dubay said, because "the tax gap is not the result of people illegally evading taxes. It's the result of an overly complex tax code that gets more and more complex every day."
And that is the sad and disengenuous rationale offered by the defenders of the status quo, the purposefully misleading statements offered by so-called "conservative" legislators and advocates who appear not only comfortable with existing disparities, but feel it is their role to perpetuate them. So they support a clearly discriminatory taxation reality, a de facto policy of indulging lower taxation for self-selecting, dishonest small businessmen, sole proprietors, and independent contractors, and overburdening honest small businessmen and salaried employees to make up the difference.
Last spring, I and a very good friend--a small businessman of impeccable honesty and unquestionable civic duty--were discussing the scope of the huge budget deficit and the options for balancing it. Government program reform and cost-effieciency, on the one hand, and tax increases on the other. He surprised me with his deep sense of both fiscal concern and public unfairness. How could accountable government fail to first assure that everyone and every business was paying their full, legal share of taxes due before demanding more of those who were already fully paying theirs?
I didn't get it. I was talking from a broader view of the issues, taking for granted a tax gap that, however indefensible, would not be remedied in time to play a role in balancing the budget--if it would be remedied at all. He was talking personally, as an honest, accountable taxpayer who expected fairness from government. I was retired and relatively removed from the fray, he was still very much engaged in the challenges of his business. I was talking policy from 20,000 feet, he was talking gut feelings about the fairness of government and the honor of American citizens. And it really upset him. We were really having two different conversations. And now I realize that his was the more important one.
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Last spring, I and a very good friend--a small businessman of impeccable honesty and unquestionable civic duty--were discussing the scope of the huge budget deficit and the options for balancing it. Government program reform and cost-effieciency, on the one hand, and tax increases on the other. He surprised me with his deep sense of both fiscal concern and public unfairness. How could accountable government fail to first assure that everyone and every business was paying their full, legal share of taxes due before demanding more of those who were already fully paying theirs?
I didn't get it. I was talking from a broader view of the issues, taking for granted a tax gap that, however indefensible, would not be remedied in time to play a role in balancing the budget--if it would be remedied at all. He was talking personally, as an honest, accountable taxpayer who expected fairness from government. I was retired and relatively removed from the fray, he was still very much engaged in the challenges of his business. I was talking policy from 20,000 feet, he was talking gut feelings about the fairness of government and the honor of American citizens. And it really upset him. We were really having two different conversations. And now I realize that his was the more important one.
Click to read more:
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