American wage earners soon will begin receiving W-2 forms from their employers, signaling that the annual rite of paying income taxes is upon us. Most of us, anyway.
On Jan. 6, the Internal Revenue Service released an estimate of the so-called “tax gap,” the difference between how much is owed to the government and how much actually gets paid. In tax year 2006 (it takes a while for the IRS to comb through the statistics, so the job is done only every five years), Americans owed $450 billion more in income taxes than they actually paid.
Assuming this figure is roughly the same every year and allowing for inflation, that would be $4.5 trillion over 10 years — an amount that exceeds what the Simpson-Bowles deficit-reduction committee said is necessary to bring federal deficits under control.
According to the IRS, 83.1 percent of American taxpayers paid what they owed in 2006, down slightly from the 83.7 percent compliance rate in 2001, the last time the tax gap was estimated. The IRS figures it eventually will track down and collect $65 billion of the $450 million shortfall from 2006, bringing the compliance rate to 85.5 percent.
The tax gap is a separate issue from tax equity, the lack of which allows billionaires like Warren Buffett and millionaires like Mitt Romney to pay taxes at roughly the same 15 percent effective rate as middle-income Americans. This may be wrong, but it’s not illegal. Tax evasion is.
Depending on your political persuasion, the $450 billion gap suggests that (a) patriots are managing to keep 14.5 percent of their money that the government otherwise would “confiscate,” or (b) tax cheats are shorting the government one out of every seven dollars owed for what Justice Holmes called “the price of civilization.”
Odds are that if you’re a wage-earner or executive who has taxes withheld from his paycheck, you’re likely to be in compliance. While some wage earners cheat on taxes — usually by taking deductions to which they’re not entitled — the threat (however remote) of an audit keeps most people honest.
The biggest part of the tax gap comes from black-market or gray-market businesses — everything from a shade-tree mechanic who takes $100 in cash for a brake job to millions of dollars in diamonds changing hands.
Noncompliance (such a nice name for stealing) also is prevalent with pension and investment income. Pension funds and brokerage houses report payments to the IRS, but they don’t withhold taxes. The weaker the reporting requirements, the more cheating is found.
And then there are our Swiss friends. Since a 2009 scandal involving the Swiss bank UBS — it admitted to helping account holders evade $780 million in U.S. taxes — the IRS has waged a well-publicized campaign to crack the traditional secrecy of Swiss and other offshore banks.
The idea is that average citizens might not complain so much about taxes if they know that the IRS is zealously prosecuting fat cats. The IRS could do more of this if tax-averse congressional Republicans didn’t keep cutting its budget and staffing.
Some 30,000 U.S. citizens took advantage of IRS amnesty programs in 2009 and 2011, coming forward with information that helped the IRS recover more than $3 billion from banks and account holders.
The IRS says there won’t be any more amnesty programs. It has prosecuted dozens of U.S. tax cheats and their Swiss bank enablers, usually settling for fines and payments of back taxes. Cases are continuing.
People rich enough to have secret Swiss bank accounts usually can afford good lawyers, so most of the cases have ended with plea agreements. That’s too bad; the sight of a few dozen millionaire tax cheats being hauled off to prison in handcuffs could go a long way to closing the tax gap.
St. Louis Post-Dispatch (Jan. 18)
Immigration socialism
President Barack Obama’s fourth year in office will be the 12th consecutive year that Americans have lived under a socialistic, Big Government approach to immigration. In fact, Obama has taken these hawkish tactics further than George W. Bush ever did. Since 2009, the Obama administration has deported illegal immigrants at a rate doubling the Bush administration’s most aggressive deportation drives.
Socialists like to control the work force and the freedom to roam, so aggressive immigration policies come naturally.
But 2012 is an election year, and Obama’s vigorous deportation program has bruised his support among Hispanics. In an attempt to win them back, the president plans to adjust a policy that has ripped apart families and has kept illegals from becoming legal.
The Obama administration announced a proposed regulatory change that would allow non-criminal illegal immigrants to remain in the U.S. while applying for legal status. The change would guarantee that more illegal immigrants take steps to comply with the law. It also means that children and spouses of non-criminal illegal immigrants won’t be left in a lurch as a parent or spouse goes away for years to obtain permission to live in the U.S.
This is a positive move from an administration that has, until now, indulged a ham-handed approach to immigration that was more oppressive than anything embarked upon by our last three Republican presidents.
The policy change should please those who understand the crucial role that undocumented immigrants play in funding government, producing wealth and consuming goods and services. It also should please activists who say their only concern involves the residency status of illegal immigrants. If we help illegals become legal, the problem of illegality subsides. Everyone wins.
Northwest Florida Daily News, Fort Walton Beach (Jan.19)
“If taxpayers paid what they owed, deficits would vanish”
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How ’bout this, if the government kept spending under control, deficits would vanish?
It needs to be both. You can’t have guys like Romney, in the top .0001%, paying less than the average Joe. He said already he pays around 15% on his income. I pay more than that and I don’t have hundreds of millions in assets — that’s wrong.
Yeah, 15% of his income must be peanuts….He pays more than “his fair share.”
It’s about the percentage of his income. He pays peanuts in comparison to what he rakes in. Me on the other hand? Because I actually work and don’t simply invest, I pay a much higher rate.
People forget that the money Romney has invested has already had income tax paid on it, the same as our investment money. The 15% is the same for all: investment dividends income. It’s somewhat similar to a Roth 401 retirement account. Pay income tax first, then your dividends income on that is handled differently because you already “own” the original capital.
I’m not forgetting anything. You’re using the “double tax” argument and it doesn’t make sense. It’d be like a store arguing that they shouldn’t have to pay taxes on a product they stock because the manufacturer already paid taxes on the raw materials. It doesn’t fly.
No, I’m talking about the 15% that everyone pays on interest income derived from money they already own!
That’s still the double taxation argument. When things are bought, sold and change form, they’re generally subjected to taxation. Even if you disagree with that, you’re still claiming they own the capital. An investment broker doesn’t own the capital. They’re investing on someone else’s behalf and yet, they pay themselves by claiming a portion of the gains and don’t pay the same income rate the rest of us do. That was my original point.
Go back and reread your original post in this thread.
It had nothing to do with Romney’s broker ! That is not what the article was about, but you argued as if Romney hadn’t worked for his money (original investment capital). What fees he pays his investment managers was never part of the equation.
Your double taxation argument is valid, but moot here. That type of taxation has always been around as a milder version of a VAT.
Dude, that’s how Romney has made his money. He didn’t amass 250 million through properly investing his own personal chunk of change. He invested on the behalf of others and paid himself (as brokers do) through those gains, avoiding the income tax the rest of us workers pay.
He was no investment broker! He worked FOR Bain Capital that basically, among many other things, bought out failing businesses and sold them off piecemeal for a profit. Ya know, good ole capitalism. He also started off quite well with his daddy’s money from being a Governor and as head of AMC, along with a bid for the White House.
No, he MAKES more than his fair share, because of the system that we have (capitalism – that redistributes wealth to those that already have at a far higher ratio than effort expended). It is idiotic to state that he pays more than his “fair share”. He should be supporting this system at a rate that reflects the degree of benefit that he has received. It will be interesting to see how much he makes for his speaker’s fees that he has characterized as a “little bit”. You should be so lucky to receive as much for so little effort! – then pay less than others in taxes on that income.
His “fair share” used to be much higher? What’s the beef?
So, are you “paid up”?
I disagree. We need to close the capital gains loopholes. If you actually own the capital that is being invested, you get the 15% tax rate — not the guys like Romney. If you’re a broker investing on someone else’s behalf, you don’t have skin in the game, you get the gains regardless, but not the losses. Income is income. Brokers should pay the same that the rest of us do for our hard work, if not more.
Buy American, pay your fair share in taxes, and stay to hell out of ChinaMart while there is still one American left with a decent job.