In taxes, as in life, cheating just begets more cheating
Tax Day, traditionally April 15, has been postponed by the pandemic, but government’s need for revenue is eternal. Also eternal: Voters like government benefits more than footing the bill.
In the 1980s, when Americans sent anti-tax Ronald Reagan to the White House but kept Democrats in control of the House of Representatives, the puckish journalist Charles McDowell observed that the electorate knew what it was doing. “We elect Democrats to Congress to give us stuff,”he said. “We elect Republicans to the White House so we won’t have to pay for it.”
But, eventually, the bill comes due. With the Biden administration proposing a significant increase in public spending for long-unmet needs — as varied as roads and bridges to caregiving for kids and seniors — a reckoning with what is euphemistically called “the revenue side” is inevitable.
Unpopular as it might be to say so, especially at this time of year, the least painful way for the government to raise money is to give the Internal Revenue Service a bigger budget. Least painful, that is, for law-abiding taxpayers.
At a hearing Tuesday before the Senate Finance
Committee, IRS Commissioner Charles Rettig reported that as much as $1 trillion a year in federal taxes were not being collected because of error and fraud — and because the IRS lacks the staff to go after the money.
This problem is not just lost revenue. “Compared with other countries, the United States has high rates of tax compliance and high rates of tax morale — the idea that you should pay your taxes,” said Vanessa S. Williamson, the author of “Read My Lips: Why Americans Are Proud to Pay Taxes.” In taxes, as in other areas of life, cheating begets more cheating.
Just this once, we might see a spurt of bipartisanship, since tax cheats aren’t popular. Not only did Sen. Ron Wyden, D-Ore., call Rettig’s figure “jaw-dropping,” the committee’s ranking Republican, Sen. Mike Crapo (Idaho), endorsed addressing the “large tax gap.”
Alas, cross-party cooperation isn’t likely on much else when it comes to raising revenue. Our political polarization is one reason why President Joe Biden is wise to stick with his campaign pledge not to raise taxes on families earning less than $400,000 a year.
Just how much have corporations shucked off their responsibility for sharing the load? As Steve Rattner, the economic commentator and chartmaker on MSNBC’s “Morning Joe” pointed out, corporate taxes accounted for 23% of federal revenue in 1966 but just 7% in 2019.The previous year, 91 of the Fortune 500 companies paid an effective rate of zero — or less. Burdening middle-income taxpayers before asking more of corporations would be political and policy malpractice.
The downward trend Rattner describes is a product of what Treasury Secretary Janet Yellen called a “30-year race to the bottom” as globalization and the proliferation of tax havens made it ever easier for corporations to escape taxes.
In a speech this month advancing the idea, Yellen spoke of every democracy’s need for “stable tax systems that raise sufficient revenue to invest in essential public goods.”
Democracies will always debate which public goods are “essential,” but Yellen’s formulation reminds us that citizens can grumble about government and still place a high value on many of the things government does. They will be more willing to pay the bill if they think everyone else who can afford to is doing the same.