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The Tax Gap Myth
The 'Tax Gap' Myth
January 30, 2007; Page A16 When something sounds too good to be true, it usually is. So now is an apt time to deconstruct the much-discussed "tax gap," that mythical golden goose that the Beltway political class is counting on to fund its spending agenda. The "tax gap" is the difference between what the Internal Revenue Service thinks taxpayers should be paying and what it collects. The IRS currently estimates this at about $290 billion a year. Ask any Congressional chairman how he intends to close the deficit, expand the Medicare drug benefit, reform the Alternative Minimum Tax or subsidize college education, and the answer is invariably "close the tax gap." Last year the Senate held some half-dozen hearings in search of this pot of gold. Senate Finance Chairman Max Baucus has put out a monthly newsletter on the issue, and last year he blocked a Treasury nominee until the agency had developed a tax-gap fix. Mr. Baucus and his GOP sidekick, Charles Grassley, have ordered up a tax-gap report from the Joint Tax Committee, and they vow to make closing the gap a priority. We suppose politicians are allowed to dream. But it's worth recalling that Washington has searched for this revenue Atlantis for decades without success. To put the tax gap in perspective, consider that the IRS took in tax receipts in fiscal 2005 of more than $2.2 trillion and that the overall U.S. tax compliance rate is about 85%. This isn't perfect, but it also isn't Italy. It's especially good considering the U.S. tax system is based on voluntary compliance. Nina Olson, the IRS's taxpayer advocate, told Congress last year that IRS auditors have found that an estimated 94% of noncompliance is the result of honest mistakes by tax filers who simply don't understand the 17,000-page beast of a tax code. One obvious answer would be to simplify the code (more on that later). But this requires political will, so Congress naturally prefers the easier route of ratcheting up taxpayer regulation and enforcement. One popular solution is to increase dramatically the information taxpayers must report to the IRS. Some potential illustrations: Brokers would have to report securities sales information to the IRS, the better to monitor capital gains. Individuals who participate in online auctions such as eBay would have to file a tax form about their transactions. Americans would be required to file expanded mortgage interest forms, while mortgage lenders would have to report loan information. State and local governments would have to provide their tax data to Washington, the better to double-check deductions. Our personal favorite would require that Americans withhold taxes from any cash payments they make to such individual contractors as babysitters, gardeners or plumbers. They'll love that one in the suburbs. Implicit in all these new plans is a much bigger IRS staff to monitor and chase tax miscreants. Here's another bad idea: Many doctors and lawyers who are incorporated under subchapter S will often pay themselves lower wages but higher dividends, in order to reduce self-employment taxes. The law is vague on the limits of this practice, and it is undoubtedly abused. But the Joint Tax Committee's preferred solution is to make all professional income -- even dividend payments -- subject to self-employment taxes; this is nothing more than a backdoor tax hike. All voluntary tax compliance systems have their limits. Under today's tax code, the only way the feds can raise compliance is to place extraordinary burdens on taxpayers. Most of those financial and social costs also end up being borne by those who already dutifully pay their taxes, in the name of catching the few who evade the law. The tradeoff for higher tax collection is less liberty, as we learned only a decade ago when Congress held much-hyped hearings on abusive IRS tactics and audits. There is a better way. The more complicated a tax system, the more likely taxpayers won't understand, or will try to dodge, the rules. Simple tax regimes, such as a single flat rate, encourage compliance and efficiency, not to mention economic growth. This has been the experience of many Eastern European countries after they imposed a flat tax, and the U.S. had similar jumps in reported tax income from "the rich" following the 1986 tax reform that cut rates and closed loopholes. At least a few "tax-gap" critics in Washington are beginning to understand all this. Messrs. Baucus and Grassley have started pairing the "tax gap" problem with the need to eliminate or simplify the Alternative Minimum Tax -- which is hitting more and more Americans. House Ways and Means Chairman Charlie Rangel has also said that fixing the AMT might require "a look at the whole tax code." Could it be that even Washington is beginning to understand that fixing the tax mess means starting over? |
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The Tax Gap Myth
From: "Earl Evleth" Organization: http://groups.google.com Newsgroups: alt.activism.death-penalty,rec.travel.europe,alt.politics.bush Date: 30 Jan 2007 11:45:24 -0800 Subject: The Tax Gap Myth The 'Tax Gap' Myth January 30, 2007; Page A16 Forged post. Again. I won't even bother to name the forger, everybody already knows. Donna Evleth |
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evleth crap again
No one cares
"Donna Evleth" a écrit dans le message de news: ... From: "Earl Evleth" Organization: http://groups.google.com Newsgroups: alt.activism.death-penalty,rec.travel.europe,alt.politics.bush Date: 30 Jan 2007 11:45:24 -0800 Subject: The Tax Gap Myth The 'Tax Gap' Myth January 30, 2007; Page A16 Forged post. Again. I won't even bother to name the forger, everybody already knows. Donna Evleth |
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