Some folks are worried that we’ll all suddenly stop paying taxes, according to a Tax Analysts story today (subscriber link only):
Richard Lavoie of the University of Akron School of Law, who studies tax ethics, says voluntary compliance rates have remained relatively high because paying taxes is an accepted social norm. Withholding plays a large role in compliance, but it does not explain everything, according to Lavoie.
Lavoie said the recent controversies surrounding the IRS, such as accusations that the agency targeted conservative groups for political reasons, and other factors such as worsening income inequality have all eroded the public’s trust in a fair tax system. If those pressures continue, it could cause taxpayer attitudes to change virtually overnight, he said. “At some point that all adds up, and what was a stable norm that we collect 83 or so percent of taxes voluntarily could flip,” he said.
I think Mr. Lavoie is identifying things he doesn’t like, such as “income inequality” and the Tea Parties, and dreaming up dreadful consequences. For example, “Lavoie argued in his 2012 paper that antitax rhetoric such as that espoused by the Tea Party also has the potential to unbalance the tax system.”
Mr Lavoie talks about “accusations” of IRS malfeasance and “anti-tax rhetoric” as the dangers — not the well-documented abuses themselves, or the IRS stonewalling of investigations into the abuses, or the former Commissioner’s dishonest response to the scandal, or the current Commissioner’s intransigence, or the President’s “joke” about auditing his opponents. These damage faith in the IRS much more than anything the Tea Party could come up with.
The article finds some people who get closer to identifying the real problem:
National Taxpayer Advocate Nina Olson in recent remarks also warned that the habit of voluntary compliance may be at risk. Like Koskinen, she cited the IRS’s budget situation, saying that if Congress continues to restrict the agency’s budget, it may lead to a downward spiral in voluntary compliance rates.
While the poor customer service and declining enforcement are related to funding, funding still isn’t the real problem. The IRS budget would be just fine if the IRS were treated as just a revenue agency. Instead Congress has made the tax system into the Swiss Army Knife of public policy. The IRS has a portfolio that ranges from industrial policy to education to retirement security to, famously, health care. The IRS policy roles can dwarf those of agencies with nominal responsibility for policy areas. Giving so many jobs to the IRS necessarily makes it less capable of doing its real job, tax collection.
Unfortunately, there’s no sign that anybody is going to take away the agency’s many non-revenue tasks. And a GOP Congress isn’t about to increase funding for the IRS as long as it seems unapologetic about going after groups opposed to the administration. To the extent IRS intransigence causes a compliance crash, the agency has only itself to blame.
Alan Cole, Lyman Stone, Richard Borean, The Real Value of $100 in Each State (Tax Policy Blog):
This map makes Iowa look pretty good. When you consider average incomes compared to the cost of living, Iowa looks even better.
Robert D. Flach’s Tuesday Buzz covers inheritance taxes, tax robots, and the large number of people who seem to rely on lottery winnings for retirement funding.
TaxGrrrl, Investment Opportunity: Possibly Booby-Trapped Property Remains Unsold. Ed and Elaine Brown forfeited their property after their armed stand-off with the IRS, but the agency can’t find anybody willing to buy it. There is some fear of booby traps, but I suspect potential buyers would also be a bit concerned about the reaction of Brown supporters.
Peter Reilly, The OID Fraud And Criminal Gullibility:
I have to say that I have some sympathy with the perspective that a reasonable person seeing the refund checks might want to take another look at the scheme. If they were incapable of understanding the reasoning behind the scheme and what OID actually is, it could be hard to resist.
The OID scheme is absurd. I realize some people really are gullible enough to believe in it — but only with a leap of faith that is, literally, criminally stupid.
Kay Bell, Pot tourism’s potential tax payoff for states with legal weed. Iowa’s Governor just says no.
Richard Auxler, Do Sales Tax Holidays Ever Make Sense? (TaxVox). “In some situations, sales tax holidays can make sense. But generally, they’re bad tax policy unless the alternative is large tax cuts with dubious growth assumptions, and not just for a weekend but for the whole year.”
Erica Brady, Final Whistleblower Regulations Create Administrative Review of Rejected and Denied Claims (Procedurally Taxing)
TaxProf, The IRS Scandal, Day 467
News from the Profession: TIL: Ancient Greeks Used Slaves as Auditors So They Could Be Beaten When They Screwed Up (Adrienne Gonzalez, Going Concern).
Tags: TaxProf, Kay Bell, Robert D Flach, TaxGrrrl, Swiss Army Knife, Going Concern, Peter Reilly, Lyman Stone, Alan Cole, Richard Borean, News from the Profession, Richard Auxler, Erica Brady, Richard Lavoie