IRS should boost audits, enforcement to catch tax cheats

Honest taxpayers are getting a raw deal. Not from the Internal Revenue Service, but from those who don't pay their fair share of taxes - tax cheats.

A recent report by the IRS Oversight Board concluded that the agency needs more help in collecting an estimated $311 billion in owed, but uncollected taxes.

The $311 billion is a stunning figure. Working a comparable number back five or ten years would produce an even more eye-popping figure. If the IRS collected every dollar of taxes owed, the federal budget deficit would be slashed or taxes could be lowered for everyone.

Beyond the financial need of the Treasury to collect unpaid taxes is the fairness issue. By permitting so many individuals and corporations to avoid paying their fair share, taxes have to be higher on those who play by the rules and pay their taxes. Honest taxpayers are being made to feel that they are being taken advantage of - and they are.

As the incidence of cheating on taxes increases it tends to spread the philosophy that it's OK to cheat on taxes. Public opinion surveys taken by the IRS confirm this disturbing trend. Last year, 81 percent of survey respondents said is was unacceptable to cheat. That is down from 87 percent in 1999.

The Bush administration wants to increase the IRS budget to $10.7 billion from the current $10.2 billion, to help boost enforcement efforts, increase the number of audits and to help catch and prosecute tax cheats. Those are all worthy goals and more manpower should help.

Many people cringe at the idea of more money being spent for additional audits. But increased audits and successful prosecutions can bring in more tax dollars and also send the message that cheating on taxes is not worth the risk.

Honest taxpayers should have nothing to fear from more IRS audits. They should welcome the increased probability that cheaters will be caught and more money will be collected.

Congress, which is responsible for creating the needlessly complex tax code that now covers some 10,000 pages of rules and regulations, should also consider tax reforms that improve compliance.

One bold approach to increase compliance would be to implement a national sales tax to replace a portion of the income tax. One advantage of a national sales tax is that it cannot be avoided by not reporting, or underreporting, earnings. People cheat the IRS by not filing taxes or by failing to disclose income, but they still buy cars, appliances and other things and a national sales tax would ensure payment on those expenditures.

Another approach to increase compliance would be to simplify the tax code. A major complaint about income taxes is that they are too complicated and unfair with too many loopholes provided to special interests. It is estimated that $200 billion a year is spent in compliance, including both taxpayers' time and the cost of hiring professionals to help. A simple, flat tax, with few or no exemptions, would address both issues, but special interests would fight such a change.

If history is any guide, simplifying the tax code or introducing dramatic reform has little support in Congress. In the meantime, it is appropriate for the IRS to crack down on tax cheats and force them to pay their fair share. For the sake of the federal budget as well as honest taxpayers.

- J.L.W.III