Law and Order 24/7, Except at Tax Time

Published on Too Much.org, by blog owner Sam Pizzigati, January 14, 2012.

The rich don’t much like paying taxes when tax rates run high. They don’t much like paying taxes when tax rates run low either. Any tax system that subjects rich people to high taxes is asking for trouble. Or so the politicians who cater to people of means incessantly argue.  

The higher the tax rate on high incomes, the argument goes, the greater the incentive the rich have to waste time and energy figuring out ways to evade paying taxes.

“Conservatives tend to talk about noncompliance as if it were solely a function of tax rates,” as former Reagan administration policy aide Bruce Bartlett noted last week, a perspective that makes tax evasion “yet another excuse to cut taxes” … //

… IRS investigators are also going to court against Swiss and other foreign banks that have helped the U.S. wealthy hide their assets.

But this momentum may be difficult to sustain. Budget cuts have undermined the IRS enforcement capacity. The agency’s $11.8 billion budget for the current 2012 federal fiscal year stands $300 million under last year’s budget — and $1.5 billion under what the Obama White House requested.

The IRS this year, enforcement chief Miller acknowledges, will have about 3,000 fewer enforcement staff on the job than in 2010. The “imbalance” between the agency’s workload and resources, IRS national taxpayer advocate Nona Olson told Congress last week, “is becoming unmanageable.”

More budget resources would certainly help turn that situation around. Every $1 added to the IRS for enforcement, the data show, yields over $4 in revenue.

But really putting the kibosh on tax evasion will likely take much more aggressive political leadership from the top. On that score, the politicos in Washington could take some inspiration from Mario Monti, the new prime minister in Italy, the home to some of the world’s most notorious wealthy tax evaders.

Italy is losing the equivalent of $152 billion a year to tax evaders, and the rich have for years flagrantly underreported their actual incomes.

On New Year’s, prime minister Monti had his tax police swoop down on luxury ski resorts and seaside spas. Their mission: find evidence of tax evasion. They found plenty. At resorts in Cortina, police found 42 super luxury cars — average price, over $250,000 — registered to owners reporting less than $25,000 in income.

Monti’s aggressive raids on the haunts of the rich and famous have allies of the disgraced former Italian prime minister, billionaire media mogul Silvio Berlusconi, fuming. They figure to be fuming for some time.

The new prime minister doesn’t appear to be content with enforcing current tax law. He’s now hinting support, say news reports, for “a new, higher tax bracket for high-income individuals” and a tax on speculative financial transactions.

And that makes ample sense. If the rich are going to evade taxes when tax rates run low, after all, society might as well jack those tax rates up much higher.

Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up at Inequality.Org to receive Too Much in your email inbox. (full text).

(Sam Pizzigati edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up at Inequality.Org to receive Too Much in your email inbox).

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