Published: Saturday, February 17, 2007
Bush should crack down on tax evasion
Ever since the November election, the Bush administration has been trying to signal that it cares about the same issues that alarm everyone else in America without actually taking any real action. For example, the president made a show of concern about income inequality earlier this month, admonishing business executives to "pay attention to the executive compensation packages that you approve." But he did not endorse a measure passed by the Senate the same week that would sensibly limit the tax break for deferred compensation for high-level managers to $1 million.
In his State of the Union Address, he made a show of concern over access to health care by offering a proposal that he knew would go nowhere because it would encourage employers to drop health coverage.
The latest display of mock concern comes in the form of the president's wholly inadequate proposal to narrow the "tax gap," the amount of taxes that go unpaid because of tax cheating. Democrats and Republicans in Congress are rightfully concerned about IRS estimates that $300 billion in federal taxes went unpaid in 2001 due to cheating a staggering figure, yet one that most experts think is a major understatement of the problem. To put that number in perspective, only $69 billion was spent on the entire Department of Homeland Security in 2006. This naturally rankles you if you pay your taxes properly because it means you're effectively subsidizing other peoples' tax evasion.
The president's proposed budget for fiscal year 2008 includes some measures to narrow the tax gap. But he admits that his plan would retrieve a mere $3 billion a year in unpaid taxes. You might call the president's proposal the "1 percent solution."
Of course, we'll never have perfect tax compliance. But experts agree that we can do a lot more to curb cheating. The Commissioner of the Internal Revenue Service, Mark Everson, told the Senate Budget Committee last year that given the resources, the IRS could collect "between $50 billion and $100 billion (a year more) without changing the dynamic between the IRS and the people."
As noted, the IRS's $300 billion tax-gap estimate, huge as it is, is probably a big understatement. In particular, huge amounts of U.S. profits and income are being shifted, on paper, to offshore tax havens. Because there's no disclosure, no one really knows exactly how much in taxes is being evaded in this way, but estimates of $50 billion to $75 billion a year seem reasonable. Unfortunately, the president's proposals do nothing to address offshore tax havens.
There are straightforward solutions to the problem. Congress should make it illegal for American banks to deal with tax-haven countries that do not cooperate with our tax enforcement efforts. Congress should also end so-called "deferral" of taxes on profits that American-owned corporations claim to earn offshore which is more like an exemption for income that is styled as "foreign." A bill introduced by Sens. Byron Dorgan, D-N.D., Carl Levin, D-Mich., and Russ Feingold, D-Wis., would end deferral for tax-haven profits.
Congress also needs to increase funding for IRS enforcement staff, which has been cut by more than a third since the mid-1990s. The agency says it can collect between $5 and $30 for every dollar added to its enforcement budget. How many opportunities does Congress have to put money into something and get five to 30 times that much back for the federal taxpayers? Yet the small increase in the IRS budget proposed by President Bush barely keeps up with the normal growth in IRS salaries, which means no real improvement in enforcement at all.
The president and Congress need to consider how honest taxpayers the vast majority of us feel about subsidizing tax evasion by the less honest.
Steve Wamhoff is legislative director for Citizens for Tax Justice. Distributed by McClatchy-Tribune Information Services