Why no universal audit?
More proof today in the New York Times that the IRS is a fucking disaster. Inefficient, politicized, hell on the poor.
The heart of the matter seems to be some computer algorithm the IRS cooked up to weed out suspicious-looking tax returns from people trying to claim the Earned Income Tax Credit. I can't tell from the article (or from this updated version) if all EITC filers were put through the machine or just a random sample (or if they were manual or on-line filers, but with incomes averaging $13,000 a piece, it seems more likely the former). Filers who were flagged as suspicious claimants got their returns frozen, presumably until the IRS works it out, possibly many years from now.
This is just too weird. Last year, I got whacked by the Canadian tax-man because I hadn't made an RRSP contribution or had income withheld from my graduate scholarship. After working out all the numbers, I wrote Revenue Canada a massive cheque that was, apparently, $52 more massive than required. I know this because, three months later, they sent me a $52 refund and an explanation. The same goes if you underpay: you get a nice letter from Revenue Canada telling them you owe them some more money. No threats. No forward-looking freezes. Just a polite acknowledgement of your mistake and a request to send the missing dough. In all cases, an actual human being goes through your (paper) tax return, compares your T-4s (etc.) against what you've written on the forms, makes sure you've claimed everything you can, and then sends you confirmation.
Why can't the US do this? Rather than trying to descern "fraud" (which can just as easily be human error) in the byzantine refundable and other tax-credit maze through which poor US citizens must navigate, why not just do everybody's return, check the claims against income receipts? If everyone got auditted, then there would be no motive for fraud, and people could be sure of getting everything from the IRS that they're owed based on their formal income receipts. If the audit was universal, then rich people would also be unable to cheat (not that they ever would!)
It wouldn't help solve the problem of underreported income mentioned in the article -- which also applies to low-income people whose main income comes from tips. (This is a problem for Revenue Canada as well.) But given the numbers that the IRS and its critics like to throw around about tax fraud on actual reported income, surely expending the resources to check everyone's return would result in a net saving for the government? It would probably also be a boon to the poor, many of whom are afraid to claim all they're owed or waste huge amounts of money taking classes or hiring professionals to make sure they get it right.
I hardly ever read anything about this on blogs or in the liberal magazines, which makes me think I'm missing something obvious. (And I haven't read David Cay Johnston's book yet.) In the last Democratic primary, only Wesley Clark suggested anything like this: an IRS and tax credit reform to eliminate the need for working-class families to file tax returns, i.e. to the let the government do it for them. But, aside from the political buggaboo of actually advocating more funding for the hated taxman, it seems obvious. Letting the government do, or at least automatically re-do individual taxes wouldn't just be more humane and more fair. It would also give an added electoral oomph to the Democrats' favourite policy toy: the refundable tax credit.
The heart of the matter seems to be some computer algorithm the IRS cooked up to weed out suspicious-looking tax returns from people trying to claim the Earned Income Tax Credit. I can't tell from the article (or from this updated version) if all EITC filers were put through the machine or just a random sample (or if they were manual or on-line filers, but with incomes averaging $13,000 a piece, it seems more likely the former). Filers who were flagged as suspicious claimants got their returns frozen, presumably until the IRS works it out, possibly many years from now.
This is just too weird. Last year, I got whacked by the Canadian tax-man because I hadn't made an RRSP contribution or had income withheld from my graduate scholarship. After working out all the numbers, I wrote Revenue Canada a massive cheque that was, apparently, $52 more massive than required. I know this because, three months later, they sent me a $52 refund and an explanation. The same goes if you underpay: you get a nice letter from Revenue Canada telling them you owe them some more money. No threats. No forward-looking freezes. Just a polite acknowledgement of your mistake and a request to send the missing dough. In all cases, an actual human being goes through your (paper) tax return, compares your T-4s (etc.) against what you've written on the forms, makes sure you've claimed everything you can, and then sends you confirmation.
Why can't the US do this? Rather than trying to descern "fraud" (which can just as easily be human error) in the byzantine refundable and other tax-credit maze through which poor US citizens must navigate, why not just do everybody's return, check the claims against income receipts? If everyone got auditted, then there would be no motive for fraud, and people could be sure of getting everything from the IRS that they're owed based on their formal income receipts. If the audit was universal, then rich people would also be unable to cheat (not that they ever would!)
It wouldn't help solve the problem of underreported income mentioned in the article -- which also applies to low-income people whose main income comes from tips. (This is a problem for Revenue Canada as well.) But given the numbers that the IRS and its critics like to throw around about tax fraud on actual reported income, surely expending the resources to check everyone's return would result in a net saving for the government? It would probably also be a boon to the poor, many of whom are afraid to claim all they're owed or waste huge amounts of money taking classes or hiring professionals to make sure they get it right.
I hardly ever read anything about this on blogs or in the liberal magazines, which makes me think I'm missing something obvious. (And I haven't read David Cay Johnston's book yet.) In the last Democratic primary, only Wesley Clark suggested anything like this: an IRS and tax credit reform to eliminate the need for working-class families to file tax returns, i.e. to the let the government do it for them. But, aside from the political buggaboo of actually advocating more funding for the hated taxman, it seems obvious. Letting the government do, or at least automatically re-do individual taxes wouldn't just be more humane and more fair. It would also give an added electoral oomph to the Democrats' favourite policy toy: the refundable tax credit.
2 Comments:
When I lived in England for a couple of years, I was amazed how much easier life is if the whole tax thing is an automatic process you don't have to touch. If you feel the deductions were in error, you can file, but otherwise you don't have to.
On the other hand--and I know it sounds really weird to say this--but the IRS does get a bad rap some of the time. They've questioned my return a couple of times (not audited, just questioned) and one letter with an explanation was all it ever took to straighten things out. I wish the phone company was as easy to deal with. I know I've probably just been lucky, but still, they're not all moonbats.
Interesting. Thanks, quixote. I expect you're right and the IRS is fine when the Republicans aren't forcing it to spend its resources investigating the poor.
I liked your "What's Wrong with Conservatives" piece as well. I would have posted a reply but blogger didn't like me that day.
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