Newspaper logo  
 
 
Local Gov’t Stories, Events

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Futurism
Books, Films, Arts & Education
Letters

Ref. : Letters to the editor

Health Care & Environment

06.23 From heatwaves to hurricanes, floods to famine: seven climate change hotspots

06.23 Latest diesel car models remain highly polluting, tests show

06.23 Norway issues $1bn threat to Brazil over rising Amazon destruction [Good!]

06.22 Al Gore: battle against climate change is like fight against slavery [videos]

06.22 Top global banks still lend billions to extract fossil fuels [who holds the debt when the music stops?]

06.22 Australian health groups urge coal phase-out and strong emissions reduction

06.22 Tories aim to block full EU ban on bee-harming pesticides [what could go wrong...]

06.22 Route to recovery: how people overcome an opioid addiction

06.21 U.S. Coastal Cities Will Flood More Often and More Severely, Study Warns

06.21 London mayor issues emergency air quality alert amid heatwave

06.21 Exxon, BP and Shell back carbon tax proposal to curb emissions

06.21 Climate goals: inside California's effort to overhaul its ambitious emissions plan

06.20 We Can’t Fight Climate Change if We Keep Lying to Ourselves

06.20 A third of the world now faces deadly heatwaves as result of climate change

06.19 We Will Soon Be Using More Than The Earth Can Provide

06.19 India’s wells are running dry, fast

News Media Matters

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

06.23 Single-Payer Healthcare for California Is, In Fact, Very Doable

06.23 Why The Koch Brothers Have So Much Influence On Trump: It Starts With Pence

06.23 Thomas Frank on the Demise of the Democratic Party [15:52 video; excellent, make full screen]

06.23 Exxon, Stephen Hawking, greens, and Reagan’s advisors agree on a carbon tax

06.23 Obama attacks Republican health bill as 'massive transfer of wealth' to the rich

06.22 Industry Was Doubly Generous With These 13 GOP Senators Now Drafting Trumpcare

06.22 3 mn will own 70% of US Wealth generated by 320 mn by 2021

06.22 Is American Childhood Creating an Authoritarian Society?

06.22 Leftwing Democrats say Jon Ossoff loss shows 'massive failure' of party's elites

06.21 How U.S. gun control compares to the rest of the world

06.21 Bernie Sanders May Have Won, Even Though Jon Ossoff Lost

06.21 In Major Tax Speech, Paul Ryan Lays Out Plan to Lavish Rich With Tax Cuts

06.21 American healthcare is at a crossroads. Where is the Democrats' bold vision? [must we all emigrate to get excellent universal single-payer healthcare at an efficient price?]

06.21 The Health Care of Millions Depends on a Few Senators

Justice Matters

06.23 This North Carolina Law Is Straight Out of “The Handmaid’s Tale” [legal immorality...]

06.23 The Supreme Court Defends the Integrity of U.S. Citizenship

06.18 'Stunning and Dangerous': DeVos Memo Reveals Plan to Roll Back Civil Rights

High Crimes?

06.23 'I buried my smallest child under a bush': starvation and sorrow in South Sudan

Economics, Crony Capitalism

06.23 Exclusive: Fake online stores reveal gamblers' shadow banking system

06.22 Top global banks still lend billions to extract fossil fuels [who holds the debt when the music stops?]

06.21 Gaius Publius: Finding the Greater Fool — The Elite Logic Behind “Going Over the Climate Cliff”

06.19 European commission to crack down on offshore tax avoidance [Trump is likely to further facilitate tax avoidance]

International & Futurism

06.23 Rival groups vie for supremacy as fight against Isis reaches tipping point

06.23 Farms hit by labour shortage as migrant workers shun 'racist' UK

06.22 Israel vs. the United Nations: The Nikki Haley Doctrine

06.22 All Signs from Trump Point to a Coming Conflict with Iran [war doesn't "fix" anything; it can only make more war]

06.22 You Do Not Think Alone [be selective of what and who influences your "hive mind"]

06.21 Trump's silence after the London mosque attack speaks volumes

06.21 Drive to get children back to school failing worldwide

06.20 Power Causes Brain Damage [The powerful could mentally put their OCD-for-power aside to have empathy (again?) if they tried]

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
Google
This site Web
  Print view: Self-Reporting Drives $385 Billion 'Tax Gap'
ECONOMIC ANALYSIS:

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: