TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, December 24, 2018

The $387 Billion Solution To Our Rigged Tax System

New York Daily News op-ed:  The $387 Billion Solution: How to Stop the Federal Government From Leaving Insane Amounts of Tax Money, Most of It From Wealthier Americans, on the Table, by Gerald Scorse:

Charges of rigging fill the air in today’s America. Elections, the economy, college admissions, the list seems endless. Whatever the truth in other cases, our tax collection system is undeniably rigged. It’s been so from the beginning, rigged against the vast majority of workers.

In 1943, under pressure to pay for World War II, Congress passed a law requiring employers to withhold taxes and report the incomes of their employees. The same law allows self-reporting by huge numbers of largely high-income taxpayers: landlords, self-employed professionals, small businesses, et al.

Tax compliance figures for the two groups differ starkly. The latest estimate from the Internal Revenue Service shows 99% compliance by wage and salary earners. Self-reporters, by contrast, are evading scores of billions in taxes year after year. ...

Let’s finish with a billion-dollar idea. The Treasury could attack that $387 billion-a-year revenue loss by inviting all techies to compete for a $1 billion prize. The goal: develop easy-to-use, non-invasive software that eliminates the self-reporting shortfall.

The nation could wind up with the bargain of the century. The loss from under-reporting of income amounts to $1.06 billion a day. Prize-winning software could recover that amount by the first coffee break of Day Two.

And in the process, end 75 years of tax unfairness.

https://taxprof.typepad.com/taxprof_blog/2018/12/the-387-billion-solution-to-our-rigged-tax-system.html

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Comments

There are LOTS of things to try before asking for that extra billion.

* Sort out that pattern of routine, confidential, and poorly written-up tiny settlements of what auditors do find (or at least think they find) in the biggest international cases, and show the public how these rules are getting applied fairly and effectively across the board.

(See "Barriers Exist to Properly Evaluating Transfer Pricing Issues" and "Better Documentation is Needed to Support Office of Appeals' Decisions on International Cases," TIGTA.)

Doesn't IRC 6103 secrecy apply only to information associated with particular taxpayers? And doesn't IRC 6108 require publication of "pertinent and valuable" statistics, which just last month this Blog posted a "Joint Statistical Research Program Call for Proposals" to augment?

And because the settlements are agreed to as legal, might this be a big addition to the tax gap in the report?


* Assure the auditors their work fits into a purpose, like on the front of the building - "Taxes Are What We Pay For A Civilized Society" - rather than just "churning out the exams" to "show productivity" (which would neither be fair to the folks who'd just pay up, nor effective on those who'd wise up).

While sec. 1204 of IRS RRA 1998 does say it mustn't "use records of tax enforcement results" to "evaluate employees" or "impose or suggest production quotas or goals with respect to employees", H. Rpt. 105-364 and 105-599 elaborate on a "balanced system of measures" that does not "rank employees ranked *solely* on enforcement results, establish dollar goals for assessments or collections, or otherwise undermine fair treatment of taxpayers", and prioritizes taxpayer satisfaction--"while any system of measures must reflect the efficiency and productivity of employees." Moreover, IRM 1.5.2.11.1 seems to distinguish broader program planning from employee evaluations.

And isn't efficient planning essential to taxpayer satisfaction with what many ultimately pay so much for -- fairly and effectively funding the government? Wouldn't want "taxpayers who do not use shelters [to] feel like 'chumps'"! See 2009's "Recent Research on Tax Administration and Compliance" posted at IRS.gov at 312.


* Bring back objective exams as a part of hiring, training and promotions to better screen for talent, skills and needs while offsetting bad criteria like "settling in," "schmoozing," and "working the system." Bureacracy, audit thyself!

Can the current administration continue this predecessor project for more, um, merit-based federal employment?

("For federal-worker hopefuls, the civil service exam is making a comeback", Washington Post, April 2, 2015)


* Protect employees speaking up to do the right thing. An OPM "Federal Employee Viewpoint Survey" question that has been cited to say it's too hard to fire employees asks whether "In my work unit, steps are taken to deal with a poor performer who cannot or will not improve" - only about a third agree.

But coupled with only 34% believing that promotions in their work unit are based on merit, less than half believing that their work unit is able to recruit people with the right skills, and institutional issues that would seem to have to go well beyond low-level bumbling, the big message from that "poor performer" question could just as well be that the agencies need to figure out how to recruit, train, organize and manage reliably and effectively--and be extra-sure to respect the rights of employees blazing that bumpy trail to success.


Just my personal 2 cents (down to 1.3 if you 1099 me?)

Posted by: Anand Desai | Dec 25, 2018 8:41:40 PM

Leaving aside the reality this so called "tax gap" is a myth, e.g., check out how much is due to hobby losses, $387 billion would not even put a dent into our runaway federal budget funded by debt. It would not even pay for one of the new fighter-bombers the Pentagon has on order.

Posted by: Dale Spradling | Dec 26, 2018 7:32:01 AM

Dale, you sure about that? $387 Billion would seem to put at least a small dent in 2 trillion annual budget deficit. (Like ~ 20%) And I have yet to hear of a single "fighter-bomber" that cost more than $100 million apiece. Perhaps you could provide concrete references?

Posted by: ruralcounsel | Dec 27, 2018 4:15:18 AM