Newspaper logo  
Local Stories, Events

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Books, Films, Arts & Education

Ref. : Letters to the editor

Health Care & Environment

03.24 Time running out to save the Earth's plants and animals

03.23 'Dead zone' in Gulf of Mexico will take decades to recover from farm pollution

03.23 EU in 'state of denial' over destructive impact of farming on wildlife

03.23 The ban on assisted death ignores the reality of illnesses like dementia

03.23 Lignite mining: Greece’s dirty secret - in pictures

03.22 Interview: Paul Ehrlich: 'Collapse of civilisation is a near certainty within decades'

03.21 THE BATTLE FOR PARADISE [renewable energy is obviously essential for rebuilding]

03.21 London air pollution activists 'prepared to go to prison' to force action

03.21 London air pollution activists 'prepared to go to prison' to force action

03.21 Subsidy-free renewable energy projects set to soar in UK, analysts say

03.21 'Catastrophe' as France's bird population collapses due to pesticides

03.21 A judge asks basic questions about climate change. We answer them

News Media Matters

03.22 Bernie Sanders: Russia and Stormy Daniels distract us from real problem of inequality

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

03.24 The Gun Control Debate: What Debate? [let's disarm playing Rambo]

03.24 The Radical Proposal That Moderate Democrats Should Be Running On

03.24 March for our Lives protests planned for 800 places across the world

03.23 Our manifesto to fix America's gun laws

03.22 Mick Mulvaney manipulated data to justify “tip-stealing” rule: report

03.22 Crooked Together: Two Equally Corrupt Parties Bent In Different Directions [the Sanders-Warren progressives are the standout exceptions]

03.22 'We Need Medicare for All,' Says Warren, But Until That's Achieved Her New Bill Aims to Curb Pain of For-Profit System [4:10 video]

Justice Matters

03.23 In court, Big Oil rejected climate denial

High Crimes?

03.23 Amnesty International slams Western arms sales to Saudi Arabia and allies in Yemen war

Economics, Crony Capitalism

03.20 Russian Roulette review: as Joe Biden said, 'If this is true, it's treason'

International & Futurism

03.24 Yes, John Bolton Really Is That Dangerous [why bring fire to the table when tensions are cooling down?]

03.24 Number of Starving People Surged to 124 Million Last Year Because "People Won't Stop Shooting at Each Other," Says UN Expert

03.24 Canada: more arrests as protest against oil pipeline expansion heats up

03.23 Trump Picks 'Unhinged Advocate for World War III' John Bolton as New National Security Adviser

03.23 At last, good news on Brexit: Britain is heading for Norway


03.22 The evil genius of Cambridge Analytica was to exploit those we trust most [the sociopathic modus operandi of The Trump Organization and Cambridge Analytica are suspiciously identical]

We are a non-profit Internet-only newspaper publication founded in 1973. Your donation is essential to our survival.

You can also mail a check to:
Baltimore News Network, Inc.
P.O. Box 42581
Baltimore, MD 21284-2581
This site Web
  Print view: Self-Reporting Drives $385 Billion 'Tax Gap'

Self-Reporting Drives $385 Billion ‘Tax Gap’

by Gerald E. Scorse
The IRS reports that the net misreporting percentage for amounts subject to little or no information reporting, such as business income, is 56%. This should impel Congress to beef up income verification.

The real divide in U.S. incomes isn’t between the top 1 percent and the other 99 percent. It’s between those whose income is reported by their employers to the Internal Revenue Service, and those who self-report. The divide is costing the Treasury about $200 billion a year, and Congress should gradually phase it out.

Tax compliance studies have consistently linked self-reporting with Treasury shortfalls. The link was underscored early this year when the IRS released its latest estimate of the nation’s “tax gap”—the difference between true tax liabilities and what the Treasury receives. The IRS put the gap at $385 billion, with more than half stemming from unreported work income.

Here’s the key statement from the IRS summary of the new gap numbers: “For example, the net misreporting percentage for amounts subject to substantial information reporting and withholding is 1%; for amounts subject to substantial information reporting but no withholding, it is 8%; and for amounts subject to little or no information reporting, such as business income, it is 56%.”

Think for a moment about an income misreporting percentage of 56%. It means that taxpayers with incomes “subject to little or no information reporting” are paying, on average, less than half what they should be paying. The better part of the tax gap comes from assuming that human beings will act like angels when they self-report their work income. (True, there’s always the chance of an IRS audit. But odds are there won’t be any audit, and thousands of taxpayers are obviously playing the odds.)

The new gap totals should impel Congress to beef up income verification. Any such move, of course, would generate fierce resistance. Economist Bruce Bartlett held top posts under presidents Reagan and George H.W. Bush and now blogs for a major daily. His remarks on the IRS data touched on the obstacles to reporting reform: “People don’t like the intrusion into their privacy—and the diminution of their opportunities for tax evasion—and businesses don’t like the cost or the alienation of their customers.”

The straight up answer to all such complaints comes from 2008 GOP presidential candidate John McCain: “Country First”. Fiscal prudence, national togetherness and tax fairness all argue powerfully for less porous reporting rules.

The billions that lose their way to the Treasury will likely increase the federal deficit, leaving a hard choice. We can raise taxes, or go without the societal benefits that $385 billion would buy. We could also stem the leakage. The nation and all taxpayers benefit from income reporting for wages and salaries. The nation would also benefit, and it would only be fair, if information reporting could become the norm for current honor system tax filers—self-employed professionals, small business owners, landlords and others. As Bartlett wrote, “It’s unfair to honest taxpayers and undermines tax morale when large numbers of people and businesses don’t pay their taxes.”

President Obama’s State of the Union address called for an America where “everyone does their fair share, and everyone plays by the same set of rules.” A current example on Wall Street shows that income reporting rules can move closer to that goal, and even gain bipartisan backing.

This is year two of the three-year phasing in of new rules for reporting capital gains. Proceeds from the sale of stocks and mutual funds were formerly reported to the IRS, but not the purchase price, called the basis. Since capital gains can’t be verified without knowing the basis, it was easy for taxpayers to misreport their investment income. Basis reporting began as the initiative of former Senator Evan Bayh (D-IN). It became a bipartisan bill when Bayh convinced fellow fiscal hawk Sen. Tom Coburn (R-OK) to sign on. The Bush Administration later added its endorsement.

There are ways of making business income reporting almost as simple as wage and salary income reporting (and much closer in tax compliance as well).

The reasons for basis reporting of capital gains apply many times over to information reporting of work income. The Treasury’s loss is far greater, as are the potential gains to taxpayers from simplified record-keeping and tax preparation. Businesses, for example, could have bank accounts with deposits coded as income and checks coded as expenses. At year’s end, banks could report the totals to businesses and to the IRS—and begin making business income reporting almost as simple as wage and salary income reporting (and much closer in tax compliance as well).

“Trust, but verify” became President Reagan’s trademark phrase during his Cold War nuclear negotiations with Russia. America’s foe today is a mammoth deficit coupled with a $385 billion tax gap. Congress could slash the gap by slowly but surely bringing self-reporting taxpayers into a “trust but verify” system. Ronald Reagan would approve.

Copyright 2012 Gerald E. Scorse.

New York City-based Gerald E. Scorse helped pass the basis reporting bill. He writes articles on taxes.

Copyright © 2012 The Baltimore News Network. All rights reserved.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.

This story was published on April 04, 2012.


Public Service Ads: