I love what I hear about the new Commissioner of the Internal Revenue Service. He sounds like the kind of person that will go after what the July 6th New York Times editorial cited as the $385 billion ANNUAL shortfall between what taxpayers owe and what they pay. The Commissioner, like me, is of Finnish descent which means that he traces his roots to Genghis Kahn and the Mongolian hoards. John Koskinen displayed some of that ingrained wrath recently in a slap-down of Representative Darrell Issa as the latter’s inane obsession continued regarding IRS treatment of Tea Party organizations suspected of trying to finance political interests with tax-deductible dollars. Can’t say that I blame them for trying, but laws operating like a sieve in that respect are a contributing factor to the above-mentioned $385 Billion.
If everyone paid what they owe, the tax rate for those who are law-abiding would presumably go down. Maybe even the Holy Grail --- a flat tax --- would be supportable. $385 billion, after all, is just over half the total amount we spend on the military each year. Common sense would say that we should spend whatever it takes to collect that missing money. Instead, we have a Congress that has cut spending at the IRS by 14 percent since 2010. What this means is that people who make over $200,000 (the threshold where most tax cheating starts) are subject to audits about one-third less often today than would have been the case two years ago. When it costs just one dollar to collect six of what would otherwise remain uncollected, even a first grader can do the math to see why it’s one government expense that should never have been cut. If anything, it should be increased.
What is it about taxes and the IRS that so many people seem to hate? I don’t get it. This is the world’s greatest country that costs a lot to operate and protect. We get what we pay for. A graduated, progressive tax rate makes sense because people who pay more in taxes have more to protect. Some aspects of our tax code also have ingenious incentives that are great for society. Take "job-creators," for example, who supposedly make up a big portion of the mythical "One Percent." Every dime they ever spent on salaries, benefits, cubicles and computers for new hires or long-term employees was entirely tax-deductible. They may have paid taxes on what they wanted to spend on Mc Mansions, vacation homes or yachts, but not on what they spent to build a business.
And by the way, taxes have gone down over the years, at least in percentage amounts. In the ‘80’s the combined Federal and California marginal tax rate hit 32 percent for a married couple when family income reached just $34,000. For single taxpayers, the number was $20,351. "Marginal tax" means that all dollars earned above those breakpoints were taxed at that high and increasing percentage. The top marginal rate for couples was 37 percent on all income over $82,151. Whew. Today’s breakpoints propelling couples into the 30-plus percent bracket have increased to $72,500. Ronald Reagan used to enjoy the fact that inflation causing salaries to rise pushed people into higher tax brackets which generated more government revenue without having to increase the percentages. It was the stealth increase that didn’t raise any red flags.
So even though tax percentages have effectively been reduced, enough people are not satisfied and struggle to play a role in creating that $385 billion annual shortfall. President Obama has suggested a $1.2 billion increase in spending on the IRS while Congress is trying to further reduce the agency’s budget by $341 million. Assuming it is true that $6 is collected for every $1 spent, it looks like that $1.2 billion might make a $7.2 billion dent in the $385 million shortfall. It’s a start, but we could collect all that is owed to the American people, our fellow patriots if you will, by spending an additional $64 billion on the IRS ($385 billion divided by 6) and presumably collect every last dime owed to us. We could use some of that tax revenue to expand the penitentiaries necessary to house tax offenders. Years ago, according to "Medical Economics," Lompoc prison was full of doctors who accepted cash payments that they never reported. Now they’re back on the street.
So John Koskinen is our new real-life "Michael Clayton," like the "fixer" from the George Clooney movie. By all accounts, he comes exceptionally well qualified. Moreover, he deserves all the money and support we can give him. Congress has a choice. They can support Koskinen or tacitly endorse tax cheating.