If you ask a Mainer about taxes, you’re liable to get an earful: Mainers have one of the highest tax burdens in the nation. Nonetheless, on election day, Maine voters turned down proposals to cut taxes.
In a slow economy, Maine voters were leery of a proposal that would result in cuts in services. The controversial ballot issue, Question 4, asked voters if they wanted to limit future increases in state and local government spending and taxes to the rate of inflation plus population growth. The measure was known as the Taxpayer Bill of Rights campaign, or TABOR. Those opposed to the measure referred to it as “TABOR II” since a similar proposal was turned down in 2006.
Those in support of TABOR claimed that the bill would put more money back in taxpayer’s pockets. Critics wondered what the actual result of would be, as many state and local services were already facing cuts. Public schools are already operating under frozen budgets.
Voters also rejected a proposal to cut excise taxes on some vehicles and exempt hybrid and fuel-efficient vehicles from sales tax. Measures to encourage the purchase of cleaner cars are popular in states like Colorado but critics feared that tax cuts would have to be made up somewhere else. In that way, it wasn’t so much a tax cut as a shift in taxation.
While tax measures on the ballots were overshadowed by publicity over questions about making medical marijuana more available (yes) and gay marriage legal (no), the tax votes may be indicative of the mood of the nation on the eve of a huge election year… Only time will tell.
What challenges are the IRS facing this year? Apparently not the complexity of the Tax Code.
The Treasury Inspector General for Tax Administration (TIGTA) released its perspective two weeks ago on the most serious management and performance challenges confronting the IRS. The top 10 challenges in order of priority are:
- Modernization;
- Security;
- Tax Compliance Initiatives;
- Implementing Tax Law Changes;
- Providing Quality Taxpayer Service Operations;
- Human Capital;
- Erroneous and Improper Payments and Credits;
- Globalization;
- Taxpayer Protection and Rights; and
- Leveraging Data to Improve Program Effectiveness and Reduce Costs.
In TIGTA’s twelve page memo (downloadable here as a pdf), the agency offers an assessment of the major IRS management challenge areas for fiscal year 2010.
“Complexity of the Tax Law” did not appear on this year’s list of challenges. TIGTA felt that the IRS had bigger fish to fry.
Not surprisingly, TIGTA found that many of the IRS Modernization Project milestones were “significantly over budget” and “significantly behind schedule.” That would explain why it ranks first on the list of challenges faced by IRS.
Also a top challenge? Taxpayer data security. Identity theft is a growing concern as more and more taxpayer data is stored in IRS computer systems and transmitted online. The IRS has demonstrated, through internal audits, that there are concerns with respect to both accessing private data and the stability of the data at IRS sites. Additionally, phishing and other targeted taxpayer scams are on the rise, which is an area of serious concern.
Another challenge worth noting: taxpayers with international activities. It’s no surprise to see this on the list considering the emphasis that the current administration is putting on offshore accounts. As US revenues shrink, US corporate revenues abroad are growing. In fact, TIGTA reports that US-based corporations more than tripled their foreign profits between 1994 and 2004, from $89 billion to $298 billion. Yet, considerably more than half of those profits were earned in low-tax or no-tax jurisdictions. Tracking that income is a serious concern to the acting Commish.
It’s always interesting to see what shows up on the list as top tax concerns. It often serves as a heads up to targeted enforcement practices and other shifts in policy. However, I have to say, this go around, I still can’t wrap my head around tax complexity not remaining a top issue. It’s a huge issue. Maybe the bigger problem is that we’ve become nearly apathetic to the cause. Perhaps it’s so complex that we don’t even think about it anymore? Kind of how we don’t even blink when we hear the word “billion” nowadays. The Code is not becoming less complex, maybe we’re just getting used to it.
Times are tough in Chicago. You can only tax the citizenry so much – and Chicago already shares the distinction of being one of the most taxed cities in America.
The solution? Enforcement. No big surprise there.
But enforcement costs money. What if you could get your enforcement for free? What if… you could convince taxpayers to rat each other out? Brilliant. And so, Chicago Mayor Daley has introduced a “Tax Whistleblower Program” for 2010.
The program would reward taxpayers who turn in those with unpaid business taxes. Taxpayers who successfully bring in money to the city would receive a percentage as blood money bounty.
A good way to destroy the competition, perhaps? The Revenue Department is counting on it. Ed Walsh, a Revenue spokesperson says: “It would probably be … a business knowing that a competitor is not remitting a tax. An employee [of the tax-dodging business] could know that, too. Typically, you need to provide some type of incentive.”
Nice.
This way, all businesses in Chicago could live in fear of their competition – and their neighbors. But a little fear is healthy, right?
Who knows if other cities will follow suit? I’m setting up my telescope, just in case…
Information involving potential fraud with respect to the first time homebuyer’s credit continues to make headlines. After initial reports that over 100,000 refunds were perhaps inappropriately distributed, the IRS has released more data about fraud relating to the credit.
Officials from the Internal Revenue Service testified before Congress that as much as $600 million of taxpayer credits are “suspicious.” Of those, the IRS suspects that 73,799 claims totaling almost $504 million appear to have been distributed to individuals who would not qualify as first time homebuyers. And – wait for this one – 582 taxpayers under the age of 18 years old, including several 4 year olds, applied for and received the credit. The legislation does allow for minors to apply for the credit but as young as 4? That seems to indicate some kind of attempt at income shifting or other manipulation from parents who were ineligible for the credit.
And it gets worse. More than 19,000 taxpayers have been identified as making application for the credit for properties that were not even purchased in the first place. Nearly 74,000 taxpayers already owned a home, apparently under the impression that the “first time homebuyer’s” bit didn’t apply to them. Many were over the income limit or applied for more credit than they were entitled to received.
Over 3,000 taxpayers did not file with a Social Security number, using an ITIN instead. The IRS issues ITINs to individuals who need a taxpayer identification number but who are not eligible for a Social Security Number. Both resident and nonresident aliens are eligible to apply for an ITIN but the numbers of taxpayers with ITINs claiming the credit has lead some to believe that significant refunds were paid to those illegally living in the country and not eligible for the credit.
All honest mistakes? Not quite. The IRS has flagged at least 8,000 claims for criminal fraud. Currently, 115 are under investigation as criminal cases.
Despite all of the bad news, realtors and not surprisingly, bankers, want to extend the credit. Some on Congress seem to agree including Sen. Johnny Isakson (R-GA), who wants to expand the credit to dole out refund an additional $17 billion. Billion.
However, the White House is not as positive. Treasury Inspector General J. Russell George said, “Based on the administration of the credit today, I am very concerned about the IRS’s ability to effectively administer the credits that are claimed before the Dec. 1 deadline, let alone any credits that may be claimed within future extended deadlines.”
In response, the National Association of Realtors had this to say: “Without congressional action now, the market and our national economy may freeze again — possibly as soon as this month.”
Which begs the question: why not watch and see? Is it possible that a market solely driven by government incentives to buy isn’t a real market at all? Fraud notwithstanding, is the credit just creating false demand or accelerating existing demand? If we give an incentive to buy today instead of tomorrow, who buys tomorrow? Do we keep incentivizing until we can’t stop?
This worries me (yes, I’m channeling a little Tim Gunn here). I’m not really a fan of tax policy solely to manipulate behavior in the first place (home mortgage interest deduction, for example). But once you start, how do you pull the plug?
