A Nation's Accounts Receivable

TRB

May 21, 1992|By TRB

WASHINGTON — Washington. -- The notion that the U.S. of A. can be run like a business is fairly fatuous, but one of Ross Perot's businesslike notions makes sense. One of the first things a new management looks at when it takes over a business is the accounts receivable. Mr. Perot is onto something when he said there's money to be raised through better tax collection.

He puts it in terms of improving the Internal Revenue Service computers, which misses the point since the IRS has been updating its computers like mad. And he exaggerates when he claims there is an easy $100 billion a year to be trimmed off the deficit in this way.

But the IRS's best estimate of the so-called ''tax gap'' -- the difference between what people owe and what they pay -- is $110 billion to $127 billion in 1992. That's the unpaid federal tax on legal income. It doesn't count drug dealing, etc.

This is one of many issues Michael Dukakis flubbed in 1988. He also claimed that billions could be raised through better tax collection. George Bush managed to turn this against him by simultaneously evoking green eyeshades and jackboots. ''Governor Dukakis operates from the premise that most Americans must be guilty, and we need more IRS agents to stalk them in their homes,'' Mr. Bush said. ''I operate from the premise that most Americans are innocent and shouldn't be hassled.''

The truth is that most Americans have no choice but to be innocent. If your income consists of wages and maybe some interest, the IRS knows everything it needs to check up on you. And those new computers are making that check-up easier than ever.

By contrast it takes human auditors to check the honesty of better-off people with more complicated affairs, and the chance of being audited has been plummeting for more than a decade. The audit rate for people making over $50,000 a year has dropped from almost 8 percent to under 2 percent.

There is a populist issue here that Mr. Perot may have the wit to seize in a way Mr. Dukakis didn't. ''Why does George Bush talk tough about all crimes but this one? Tax cheating is a country-club crime. I'll take the votes of all the honest people who pay their taxes and George Bush can have the votes of people who cheat.''

There are are basically three ways to cheat on your taxes: hiding your income, exaggerating your deductions or not filing a return at all. A General Accounting Office study last year reported an ''ironic imbalance'': If a low-income person doesn't file a return, the IRS computes the tax due and sends a bill. If a high-income person doesn't file a return, that's too complicated, so the IRS sends a notice. If the person ignores the notice the IRS does . . . nothing, about half the time.

The honesty rate varies widely on different forms of income. For wages and salaries it's 99.5 percent. No surprise, since the government not only gets a W-2 form, but already has your money through withholding. For interest and dividends, the honesty rate is about 95 percent. For capital gains, it's 88 percent, so capital gainers are already awarding themselves a large tax cut.

On the deduction side, too, cheating is hard for most people. Making up a few charitable contributions is about the only option. Far richer are the possibilities for small-business owners and self-employed professionals like doctors and lawyers, which one reason this group awards itself an unauthorized 23 percent tax cut every year.

The IRS estimates that better enforcement would bring in four or five dollars for every dollar it cost. And that's just the direct payoff, not counting the deterrent effect on would-be tax cheats. A common-sense business person would say: Keep spending more until the extra dollar you spend brings in less than a dollar of lost revenue. Reasonable concerns about burdening innocent taxpayers would dictate stopping well short of that businesslike standard, but not as far short of it as we are now.

Having demagogued Michael Dukakis on this issue, President Bush, once in office, began including billions of dollars labeled ''improved tax collections'' in his annual budgets. The lure of the revenue was irresistible. But Mr. Bush has done little to make the revenue materialize. The current IRS budget contains $29 million to start up an enforcement program aimed at high-income individuals and corporations; it is expected to bring in $750 million over five years. Peanuts.

And even this had to be rammed down the administration's throat by Congress. Last year Mr. Bush's Office of Management and Budget wanted the IRS to shift resources from auditing the affluent to targeting the middle class. The agency was looking for a quick cash hit, since middle-class people tend to give in and pay up faster. The IRS resisted, but found its funds for auditing high-income people slashed anyway.

With their constant denigration of the government, their sneering implication that all taxes are wasted, their ridicule of reasonable efforts to enforce the tax laws, President Bush and his predecessor have helped to create an atmosphere in which an honest taxpayer feels like a sucker. Their rhetoric alone has probably cost the Treasury billions in lost revenue. Changing that atmosphere will require more than just new computers at the IRS.

TRB is a column of The New Republic, written by Michael Kinsley.

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