Should the IRS Audit More Taxpayers?
Currently, the IRS only audits a tiny fraction of the tax returns filed each year, writes George Leef. Less than one-fifth of one percent of taxpayers had to endure a face-to-face audit last year. The co-authors of the widely discussed book Freakonomics contend that most Americans should favor a significant increase in IRS auditing. But they are wrong that more audits would be good for you. FULL ARTICLE
Comments (41)
Thanks for the enlightening article.
Indeed, the point to get across to people is that it's better to keep money in the hands of responsible people/families, and that money in the hands of centrally planned government does always mean misallocation of money.
We need to dispel the illusion that millions of dollars for government is a good thing, that it is useful.
It's time to step on the spending brake, to start spending money (by ourselves, not having government do it) on something useful, not on braindead government programs and war.
Published: May 1, 2006 8:29 AM
The article, alarming title and all, was insightful, but it omits a couple of significant costs. First, the potentially quantifiable cost of taxpayers defending against the audits -- more 'tax professionals' receiving compensation from the auditees. Second, the costs to the actual auditees in connection with lost productivity while defending against the audits, and the intangible but real stress created among both auditees and the entire pool of taxpayers.
For most, the reason the title is such a grabber goes directly to this last, not the notion that an audit will turn up additional tax to be paid.
As with defending against lawsuits irrespective of outcome, the stress factor while being threatened with some external assault which one must fight because flight is not possible, is an unquantifiable but massive human cost.
Published: May 1, 2006 9:07 AM
Good article but you may be overlooking something. Suppose the audits force a tax-dodger to pay $1000 more to the government to spend unwisely. But that means that a number of honest taxpayers, like me (ahem) will pay $1000 less to the government, and we can spend this extra money probably more wisely than either the tax dodger or the government. This would make me vote for more audits.
However, there is a balance between the income and the cost of tax audits -- they can become very expensive if you want to collect every dollar.
Increasing audits is fine but the big need is to reform the tax code.
Published: May 1, 2006 9:15 AM
05/01/06am Why not attack the "problem" directly.
1) Abolish all taxes on businesses and corporations.
2) Abolish all withholding on wages, salaries, and other personal income.
3) Require that federal government tax each year sufficient to cover current federal SPENDING.
4) Require each individual, each pay day to write a check to the IRS, address and mail an envelope to the IRS. Hire an army of nasty enforcers to pursue stragglers.
Rather soon tax payers will begin to ask: How is this money being spent? Is it being spent on items I have any interest in?
Why fiddle around the edges? Taxes never really are the "problem".
Published: May 1, 2006 9:27 AM
I would like to see the practice of tarring and feathering tax collectors become popular again. It's the least they deserve.
Published: May 1, 2006 9:49 AM
Does anyone actually believe for a second that if the government succeeded in forcing all tax dodgers to pay up that it would lower taxes on everyone else? Would a mugger steal less from you if you told him your friend had a secret wad of cash hidden in his shoe?
Published: May 1, 2006 9:59 AM
Charles, whether one avoids taxes or not has nothing to do with one's honesty. :) Your label "honest taxpayer" suggests otherwise.
Published: May 1, 2006 10:35 AM
I'll purport that the real reason the IRS audits "so few" taxpayers, and leaves the heavy lifting of mega-phoning FUD into potential non-compliers to the MSM, is to avoid stirring a great awakening, of the many, that begins an earnest questioning of their(the IRS') activities.
I think it is somewhat akin to Speed Limit enforcement. The People are complacent, in its face, so long as it is a seeming few and rarely themselves. But, automate the process, speed trap cameras that mail citations to the registered owners, and all fur flies.
BTW, the Nature of the Tax Code ties in nicely with what Jeff was illuminating in his "Olive Bar" post.
Published: May 1, 2006 10:35 AM
Why do Libertarians always side with tax cheats? Is lying to the govt more honorable than lying to one's parents or spouse or employer?
Second, Intersting recent poll concludes that tax evasion is some sort of a major sin. The builder who works under the table is a good example. It is estimated that half the economy is under the table. If so, and if 80% of the taxpayers are honest, then every year an amount equal to half the tax collection is transferred from 80% of the population to 20%.
Third, the author thinks that the cheat will "invest" a good part of his booty into the legit economy. Why? Most Americans are ignorant when it comes to money. For example, the third of all new car buyers who are "upside down" and the half of all credit card holders who carry an average $8,000 balance, and the majority of job changers who cash in their 401ks.
Fourth, If there is any validity to the "velocity of money" concept then the velociety of underground economy must be ten times that of the honest economy because 90% of all "money" is electronic and not used by the consumer to pay off his thief.
Simplist solution is to cancel all income & sales taxes, eliminate cash money, and place a tax on electronic transfers.
Published: May 1, 2006 10:58 AM
Billwald,
They side with the tax cheats because they don't recognize the legitimacy of the government. That should have been obvious.
Published: May 1, 2006 11:20 AM
eliminate cash money
Spoken like a true totalitarian.
Published: May 1, 2006 11:36 AM
Billwald, the reason why at least I consider black market labor a good thing, is because it's a voluntary, two-sided agreement.
It helps one person getting work done for a fair/affordable price, and it helps another person get some money. My guess is that more affluent people don't usually have lots of black market agreements, but especially the poorer people do, and it's what's keeping them alive in our inhuman polito-economy that's basically keeping lots of people unemployed (which in the US usually means personal/financial desaster).
Since government doesn't help most people, it's good that people help each other - even if it's illegal.
If you forced all of those people to pay taxes, most of those productive things being done would simply be unaffordable to one person, while the other person might starve for lack of money. I don't see why something that helps two people, while affecting *nobody else at all*, can be illegal. IMHO this attitude is inhuman.
Published: May 1, 2006 11:41 AM
Why do Libertarians always side with tax cheats?
Nobody "cheats" their robber. You should know that.
Is lying to the govt more honorable than lying to one's parents or spouse or employer?
Yes, it is. The same way as it is more honorable to lie to your robber: "I do not carry cash with me, dude."
Published: May 1, 2006 12:39 PM
Third, the author thinks that the cheat will "invest" a good part of his booty into the legit economy. Why? Most Americans are ignorant when it comes to money.
That is not a justification to rob people out of their income, Billwald. Even if people do not know how to handle money, you cannot argue the USGov knows better - especially since it cannot do a simple thing like balancing the books.
Published: May 1, 2006 12:41 PM
Dear billwald,
Please read on libertarianism so you can start making sense.
Sincerely,
Everyone
P.S. Pol Pot found eliminating currency to be very useful. Yes, that's not what you asked for, but it's just as good for the state's purposes.
Published: May 1, 2006 12:42 PM
The big reason is the the price tag. One IRS worker can bring a case up but it is IRS auditors and enforcement that has to take it from there. Ultimately, it is law enforcement that takes the case. Of course law enforcement is extremely expensive. Look at Sarbanes Oxley!!!
Tighter envforcement will require tens of thousands of folks going around using the hammer of the justice system to extract more money from rich folks. That will require thousands more federal police commonly called the FBI, Federal layers commonly called the Justice Dept and Federal Court time which is not exactly empty of cases.
Of course these agencies could be spending their time in a more worthwhile manner by arresting TERRORISTS and other SCUM!!!! Instead of angry tax payers.
Then comes the real funny part. The only folks going after for tax evasion are those most able to fight it.
Underneath all of this is the absurd complexity of the tax code. You will have armies of laywers on the government side and the defendent's side arguing over literally piles of regulations.
The government is better off hoping people are mostly honest.
Published: May 1, 2006 1:29 PM
The big reason is the the price tag. One IRS worker can bring a case up but it is IRS auditors and enforcement that has to take it from there. Ultimately, it is law enforcement that takes the case. Of course law enforcement is extremely expensive. Look at Sarbanes Oxley!!!
Tighter envforcement will require tens of thousands of folks going around using the hammer of the justice system to extract more money from rich folks. That will require thousands more federal police commonly called the FBI, Federal layers commonly called the Justice Dept and Federal Court time which is not exactly empty of cases.
Of course these agencies could be spending their time in a more worthwhile manner by arresting TERRORISTS and other SCUM!!!! Instead of angry tax payers.
Then comes the real funny part. The only folks going after for tax evasion are those most able to fight it.
Underneath all of this is the absurd complexity of the tax code. You will have armies of laywers on the government side and the defendent's side arguing over literally piles of regulations.
The government is better off hoping people are mostly honest.
Published: May 1, 2006 1:30 PM
Billwald, why do you call people who attempt to protect their property from theft "tax cheats?"
Published: May 1, 2006 2:00 PM
It is sickening that so many people have been perverted by the government into believing that there is something honest about taxes. As mentioned before, it is ok to lie to your robber. I don't think Jesus Christ is going to blame you for that one. And if one person pays 40% and another pays nothing or something like 10%, the government is cheating us if anything in their unequitable robbery.
Published: May 1, 2006 2:35 PM
The notion that cheating is good for the nation is an incredibly stupid argument.
However we should make it harder to cheat by removing aspects of the tax code that make cheating easy. We could start by eliminating Schedule A itemized personal deductions. It's too easy for taxpayers to make stuff up here becuase they are self-reported and rarely audited. And also remove the adjustment for moving expenses. Stuff like that.
Published: May 1, 2006 2:37 PM
I think that cheating on your taxes is probably one of the best things you can do for you country. In fact, if it werent for the wealthy sending their money overseas in tax-havens as a worldwide phenomenon, the human race would be a lot closer to starvation than it currently is.
Published: May 1, 2006 2:52 PM
Cheating on your taxes is the same as telling the thief that you have no more money on you. It is self-defense and the defense of your property. The IRS is a thief and the only difference between them and a robber is that the latter doesn't give you the "courtesy" of letting you fill out theft papers.
There is no duty to obey. Thus: Cheat, lie, refuse, dissent, resist, disobey!
Published: May 1, 2006 3:13 PM
for consideration :
"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it.� --Bastiat, The Law
How close is the above to accurately encapsulating our experience today?
Published: May 1, 2006 3:38 PM
Spot on, M.E.
Published: May 1, 2006 4:06 PM
The notion that taxation is good for the nation is an incredibly stupid argument [sic].
However we should make it harder to pay taxes by removing aspects of the education that equate legislators with God. We could start by eliminating public schools. It's too easy for legislators to make stuff up here and require children to learn it as facts. And also remove the International Revenue Service. Stuff like that.
Published: May 1, 2006 4:49 PM
billwald,
Tax-evasion is not a subsidy. The person who pays 10%, and the one that pays 40% is still robbed. And frankly, even if you didn't think so, the progressive tax is designed to rob people differently. So are you saying that it is legitimate to say to one person 'I have the right to be robbed 10%', and to another 'I have the right to rob 40%'?
--
"The notion that cheating is good for the nation is an incredibly stupid argument."
You seem to be confused as to the difference between 'the nation' and 'the government. This is a collectivist outlook, in reality there is only people. So if some people in the nation (the government) tell other people in the nation (non-government) that they have a legitimate claim on your earnings, when in fact they do not, how would submitting to the former be good for the people in the nation?
"However we should make it harder to cheat by removing aspects of the tax code that make cheating easy. We could start by eliminating Schedule A itemized personal deductions. It's too easy for taxpayers to make stuff up here becuase they are self-reported and rarely audited. And also remove the adjustment for moving expenses. Stuff like that."
Sounds good, why don't we add another clause. Those who have used 'Sigma' in their handle will be required to pay 99% of their income to the IRS. It's too easy for Sigma handle users to make up their handle, because they are self-reported and rarely audited. And also remove the adjustment for handle-changing expenses. Stuff like that.
Published: May 1, 2006 5:02 PM
Good points there. I am all for abolishing taxation---but it won't happen any time soon.
Published: May 1, 2006 7:30 PM
Billwald
You sure got a lot of people mad. Must have wondered into the wrong neighbourhood. Like the 90+% of people that believe taxes are useful you have been conditioned the same way people in ancient societies were conditioned to believe that slavery is inevitable. In a democracy its your right to be a tax slave if you want to be but please understand that its my right to keep your slavers away because I like being a free man. In a world dominated by slaves and slavers its good to know that there are still ways for 6% to be free. However if people like you find a way to shut down all avenues to freedom then I suppose I will have to choose between being a slave or a slaver. Hmmm let me see, which do I prefer? Slavery only exists in the world because the majority of minds are enslavable. Christ did'nt call us sheep for nothing. When the beast finally gives each person a number and he won't be able to buy or sell without that number (especially when he has to use numbered currency linked to his number)then it will be time for guys like me to take up our new career as slavers (we would never use such an offensive term of course).
Published: May 1, 2006 8:27 PM
One of the major fears of getting audited is that the IRS will always find something that you did wrong. With a tax code as complicated as ours, there is usually some place where you haven't dotted the i or crossed the t properly, or at least improperly in the eyes of the IRS agent (who often has little knowledge of the tax code).
Published: May 1, 2006 11:46 PM
The notion that taxation is good for the nation is an incredibly stupid argument.
Who is that nation person anyway?
Oh, you mean the kleptocrats aka "the political establishment".
I'd think that the best thing we can do for them is 10ft of hemp rope and a sturdy tree branch.
Published: May 2, 2006 2:49 AM
Actually, just getting a significant percentage of population (say, about 20%) to stop paying taxes would be enough to crash the regime - with no resources to pay to enforcers they won't be able to collect, and thus more people will be encouraged to "cheat", etc.
Of course, they can print more money, but given the shaky position of the dollar, it'd immediately cause hyperinflation and monetary crash (and no taxes... hehe).
Even better - to protect those who get caught into the remnants of enforcement a mutual-help organization can be created, which insures against tax collection. One pays no taxes, and buys (much cheaper) insurance instead. If he's caught he claims some mistake, collects insurance, and pays up, so no goons come to his house to beat him up.
E-filing is great, since it can always be blamed on some computer glitch -- no way to prove that the actual person filed the taxes.
With such impressive rate of tax auditing that makes business sense, hehe. Especially if located outside of US jurisdiction.
Published: May 2, 2006 3:08 AM
If the government has a set level of expenditure (ie. budget) then reduced tax evasion will simply lower the overall tax burden on all taxpayers through a reduced tax rate. Granted, there will be incentives for the government to squander the money, but if there is diligent economic and social policy, the government can pass on the savings through increased income from tax evaders to all taxpayers.
And I find it interesting that you ask whether people are more diligent spending their's or other people's money - all government money is other people's money. The freakonomics article is merely pointing out that people should pay their fair share. Should others who don't have the financial trickery to evade taxes be punished with higher tax rates? I think not.
Published: May 2, 2006 7:05 AM
The freakonomics article is merely pointing out that people should pay their fair share.
On what basis do you calculate this "fair share" of which you speak?
I'm sure there's a "share" that you find preferable, but that's not exactly the same thing as "fair." How about ZERO for everyone? That's as "fair" as it gets.
Plus, it's a rather perverse idea -- when some people are robbed at gunpoint, others should willingly contribute some portion of their earnings to the robbers, too, so that everyone is robbed at least a little.
Published: May 2, 2006 8:27 AM
The point being missed here is that the self employed can evade the Alternate Minimum Tax, simply by deducting expenses before they calculate AGI. Married couples share the 150,000 limit for AMT. with single or head of household paycheck earners and are taxed at a much higher level then others. The reason being, the IRS can levy taxes on paycheck earners with little or no expense. It cost the IRS much more to go after the self employed. The bottom line is people who make their wages by paycheck are being taxed to cover those who can hide thier income and inflate the deductions. It's no wonder those who make their living by paycheck want to see more audits.
Look at the AMT calculation, it's a flat tax... what is there to audit? hence the audits would have to be on the self employed,
Published: May 2, 2006 10:00 AM
Cindy,
"It's no wonder those who make their living by paycheck want to see more audits."
What you illuminate is explained well in F.A, Hayek's book: "The Constitution of Liberty".
Published: May 2, 2006 11:15 AM
Libertarians don't understand social contract. We should be arguing that govermental enterprise is inefficient, not arguing that it is illegal.
Published: May 2, 2006 11:16 AM
Billwald,
True libertarians understand social contract, they just think it legalized theft if it is enforced under threat of violence.
Do you really think most of the people commenting here would let someone starve to death through malice, or as you suppose, ignorance?
Published: May 2, 2006 11:21 AM
There is no such thing as a social contract. Contracts are voluntary negotiated agreements between actual people. Contracts are not unilateral or enforced by violence.
"Social contract", the last resort of a fool who wants to force his own responsibilities on someone else.
Published: May 2, 2006 11:51 AM
Billwald wrote:
Libertarians don't understand social contract. We should be arguing that govermental enterprise is inefficient, not arguing that it is illegal.
Not one here is arguing that taxes are illegal or that a government is illegal. What we are arguing is that taxation is IMMORAL and UNETHICAL, and it is the same as stealing at gunpoint. Whether there is a social contract or not, the concept of taxation as stealing cannot be avoided, or obfuscated.
A "social contract" that permits stealing is not a contract, nor is it social. Giving away money because you have to is not a form of solidarity - solidarity comes from conviction and decision, not from threat.
Published: May 2, 2006 1:34 PM
Social contract!!?? Is that the source of all your error and confusion, Billwald?
I understand the concept very well. You have heard of Hobbes? Leviathan?
Rousseau? The darling of the Communists? Bastiat dismantled Rousseau 150 years ago:
"The law has placed the collective force at the disposal of the unscrupulous who wish, without risk, to exploit the person, liberty, and property of others. It has converted plunder into a right, in order to protect plunder. And it has converted lawful defense [of life, liberty, and property] into a crime, in order to punish lawful defense ... It places the whole apparatus of judges, police, prisons, and gendarmes at the service of the plunderers, and treats the victim – when he defends himself – as a criminal."
The idea of a social contract is, quite possibly, the deadliest, most destructive idea in the history of human thought. Just show me where I signed it, and we can settle things once and for all.
Published: May 2, 2006 1:54 PM
The cost of compliance with the tax code is already high. Part of that cost is the not insubstantial cost of being audited. If there were more audits, more potentially productive time on the part of the victims of those audits would be lost to uncompensated hours spent with auditors.
Furthermore, audits are stressful events. Stress such as this has a statistically significant negative effect on health and consequently longevity. With more stress-related health problems will come higher health care expenses. Perhaps the only bright side of that is the hope that they might be deductable.
Published: May 3, 2006 4:04 PM