Good news for tax cheats…

April 26, 2014

OK, just a little end-of-season rant before returning to good, sound tax advice.

So for those who cheat on their taxes, I saw this bit of encouraging news recently:

IRS Audit Rates Hit New All-Time Low

While it may be tempting to view this as good news — after all, who like IRS audits? — the fact is a significant amount of people cheat on their taxes, and ever-increasing complexity in the tax law makes it harder and harder for the IRS to detect cheating without a certain amount of random audits. So while there are some tools the IRS has at it’s disposal to carefully target which 0.9% of taxpayers get selected for audit, it’s absurd to think that only 0.9% of taxpayers are deliberately cheating. And it’s also absurd to think that ALL of the 0.9% who are audited actually did anything wrong. (In fact, probably a minority of that group did anything wrong…the IRS still relies heavily on random audits, which is the only threat they’ve got against countless types of fraud that are impossible to ferret out by any other means.)

So while I’m not advocating for being dishonest on your taxes, it’s simply becoming more and more irrational to be honest. When the odds of getting caught are really, really low, even the threat of large fines does little to incentive honesty.

I sometimes encounter people who believe society could function with government funded entirely by voluntary donations…that people could contribute only what they wanted toward streets, police, schools, military, etc. While I highly doubt such a system could work, even if it could it would simply be a generosity tax. Those who choose to be generous would bear the burden while those who stingily refuse to give a dime would collect the benefits that everybody else pays for. I can not imagine a system that so heavily disincentives generosity could possibly work at any significant scale or for any significant length of time.

Well, folks, we seem to be moving rapidly toward an honesty tax. If you’re honest on your tax return, you get to bear all the cost of government services — or at least a greater share of it. But if you’re dishonest, you get a free (or greatly reduced price) ride on the backs of the rest of us naive schmucks.

So while some factions in Congress love to vilify the IRS and cut its budget at every opportunity (all while accomplishing nothing in terms of simplifying the tax code to make it easier to administer), can we just call out what they’re really doing? They’re pushing an Honesty tax. They want honest people to bear the costs of society and give the dishonest folks (presumably like themselves) a free ride.

OK, rant over, back to real tax advice (for honest folks just trying to pay their fair share but no more) next time…

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