Who’s Cheating Whom?

May 6, 2001 • Commentary

Most Americans think tax laws are too complex and tax rates are too onerous. Not a bevy of politicians and journalists, however. They want to give the IRS more money and power.

There may be no more fundamental issue than one’s view of taxes. The traditional American attitude, reflected by the colonists who made a revolution more than two centuries ago, is that taxes are the price of an uncivil society.

Because people are fallen, we need government to create a framework for imperfect human interaction. But people’s very sinfulness requires that we keep government small and limited, and thus taxes low.

The other view, now predominant among American elites, is that people are perfectible. Thus, government is necessary to undertake endless social engineering schemes.

All income properly belongs to the state, to be divvied up by legislators advised by public‐​spirited experts and activists. Taxes should be high for everyone.

In the latter opinion, the falling number of IRS audits is a matter of not just concern, but horror. Time magazine’s Frank Pellegrini complains that only one in 204 returns was audited in 2000, half the rate of 1998. Even the working poor, he writes, ”could roll the dice 161 times without coming up audit.”

The IRS naturally wants more money for audits, computers, personnel and more. A nine‐​member IRS Oversight Board recommends an extra $800 million for 2002.

Pellegrini would go quite a bit further. ”Throw a couple of hundred billion the tax man’s way,” he writes about 21 times President Bush’s recommended $9.4 billion. For ”an effective tax man is the government institution on which all others are built.” If we don’t do so, beware: ”Just look how well Russia’s doing without one.”

Actually, why stop at even a vastly wealthier, more intrusive IRS? Why not go back to the old Soviet system? Let the government collect all revenue, paying out only as much as it deems appropriate. That would kept cheating to a minimum.

No one really knows the scale of ”cheating.” Bruce Bartlett of the National Center for Policy Analysis estimates a $145 billion tax gap.

But responsibility for the gap doesn’t lie with mendacious taxpayers. It doesn’t lie with squeamish tax men. It lies with irresponsible congressmen.

To finance all manner of wasteful expenditures ranging from wars on countries that have not threatened the United States to loans to politically influential small businesses Congress has raised the tax burden to the highest level since World War II. The Tax Foundation figures that Tax Freedom Day, when we effectively stop working for the government, will be May 3 this year, the latest ever.

Proposals to lighten the tax burden ever so slightly have generated a hew and cry among the special interests that live off of the productive. Even some Republican Senators are willing to undermine President Bush’s modest tax cut in order to increase federal spending.

Politicians have poured special invective on higher‐​income taxpayers, who pay the vast majority of taxes. Indeed, just 1.7 percent of people contribute 40 percent of income tax revenues. Yet, they are constantly told, they deserve nothing back even as the government ruthlessly overcharges them.

The financial burden of taxes is exacerbated by the complexity of the tax code, which has itself become a vehicle for social engineering. In 1945, instructions for the 1040 tax return form ran four pages. The form required 52 pages in 1985, and 117 pages today.

There are more and more complex forms. The forms take much longer to fill out. The vast majority of Americans use professionals or computer programs to complete their forms.

Even Pellegrini admits this is a problem, calling on Congress to simplify the tax code though in part to make ”cheating easier to spot.” But he would also like to make it easier to comply.

If legislators refuse to do so, they should not be surprised that taxpayers decide to resist, even illegally. Americans are being plucked like chicken and are forced to pull their own feathers. All the while they are subjected to sanctimonious harangues about how they are greedy and uncivil if they attempt to deny even one dollar to spend‐​thrift politicians who worry far more about the next election than the next generation.

Public anger has focused on the IRS, and the agency has committed more than its share of mistakes and abuses. But the real culprit is Congress. It has given those who work at the IRS the impossible task of fairly implementing an unfair tax code and unfair tax rates.

Does Congress want to cut cheating? It should be frugal with taxpayers’ earnings. Give everyone the tax cut that they deserve. And simplify the tax code.

About the Author