Newspaper logo  
Local News & Opinion

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Books, Films, Arts & Education
Open Letters:

Ref. : Letters to the editor

Health Care & Environment

11.25 Experts discuss how to build a carbon-free energy industry

11.25 Somaliland stricken by drought: 'We need what all humans need'

11.25 What can the world learn from Växjö, Europe's self-styled greenest city?

11.24 Weather disasters occurred almost daily over last decade, UN says

11.24 Most of Britain's major cities pledge to run on green energy by 2050

11.23 The Gene Hackers

11.23 Wind from Britain, solar from the Sahara, geothermal from Iceland

11.23 Alberta to introduce carbon tax

11.23 First EPA chief accuses Republicans of ignoring science for political gain

11.23 Climate change and the Republican party: 'America is not a planet'

11.23 World trade has an important role in combating climate change

11.23 The Guardian view on antibiotic resistance: a clear and present danger

News Media Matters

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

11.25 Why white people aren’t called “terrorist”: The media accepts that “people who resort to violence are left-wing or Arab or both” [fighting to change a racist culture head-on]

11.24 Five people shot at Black Lives Matter protest in Minneapolis: Police

11.24 8,855 Murders by Firearm in US in 2012 vs. 30 (Equiv. 164) in UK [graphics, video]

11.24 Part 4: A reservation town fighting alcoholism, obesity and ghosts from the past

11.24 Donald Trump doesn't care what's true, just what his base feels is true

11.24 Republicans think being pro-family means forcing women to have babies

11.23 This is why we’re so f*cked: Our politics are only going to get worse

11.23 5 worst right-wing moments of the week — The Donald goes full fascist

11.23 Louisiana Just Voted to Give a Quarter of a Million People Health Care

11.23 Shooting in New Orleans park leaves at least 16 people wounded [normal, move along folks...]

Justice Matters

11.22 West Virginia mine explosion trial showcases challenge of jailing a CEO

High Crimes?

11.24 Saudi Arabia: Poet Sentenced to Death for Apostasy [Saudi Arabia: an ISIS-like Islamic theocracy...]

Economics, Crony Capitalism

11.25 Fossil fuel companies risk wasting $2tn of investors' money, study says

11.23 Pfizer and Allergan poised to announce history's biggest healthcare merger

11.22 Hang Onto Your Wallets: Negative Interest, the War on Cash, and the $10 Trillion Bail-in


11.25 Who owns our cities – and why this urban takeover should concern us all

11.25 Angela Merkel stands by refugee policy despite security fears

11.25 Cultural figures and rights groups call for release of poet facing execution [fighting to change a barbaric Islamist culture head-on]

11.25 Manuel Valls: the French PM taking a hard line against terror

11.24 Muslims are integrated in France, but the bad guys want a clash of civilizations

11.24 Turkish military official says fighter jets destroyed plane after it violated country’s airspace, which Russia denies

11.24 Government ‘must do more to help vulnerable households this winter’

11.23 Beijing Replaced This Huge Bridge in Only 43 Hours

11.23 Paris suspect Salah Abdeslam still on run after Belgian police raids [1:35 video]

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: