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October 31, 2008

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Another reason why the national sales tax idea intrigues me...

Sadly, not surprising at all. Fair Tax is more and more appearing to be the best solution.

I hope the money has been put to good use stimulating the economy. I mean, it's not like stealing, or anything, right?

$1 billion? drop in the bucket. over $42 billion in additional tax "refunds" were given out last year to folks who didn't pay any taxes, and it was completely legal...EITC

Every tax system is going to have it's problems. These people lied on their tax returns - that's why they got a big refund. If someone fills out a "national sales tax" return fraudulently, that would cause a revenue shortfall as well. It happens all the time when business don't submit payroll and sales tax to the government...but those stories aren't as "sexy" as bashing the IRS.

Is it just me or is this blog getting further from personal finance and far closer to anti-government libertarian-esque rants? I swear it's like talking to my sister, who's always saying, "grumble....no money....grumble....taxes paying those who don't work....grumble."

Hey it isn't my blog, so do whatcha want. Just an observation.

AdamCo - Understood, but the 2 are just to intertwined to ignore. Without the so-called "anti-government libertarian" viewpoints there would be no more "personal" finance. Why even talk about saving for retirement or health care if the government is not going to let me worry my pretty little head about that complicated stuff and is just going to take care of it for me...

AdamCO --

I'm sorry, I sometimes forget that all the readers here are not past the personal finance 101 stage of managing their money. So let me lay it out simply:

1. A key part of successful money management is keeping your expenses under control. This means eliminating those expenses you don't need/want/use, cutting back where you can, and stopping waste of any sort.

2. One of everyone's biggest (if not THE biggest) expenses is taxes. Rank your expenses for last year and I'm sure you'll find the same is true for you.

3. Refer back to #1 and #2 at the same time. Taxes are a big expense. All expenses (and especially big ones) need to be reviewed to make sure they are being spent wisely. Hence, taxes need to be reviewed to make sure they're being spent wisely.

4. In my opinion, wasting $1 billion is not spending our taxes money wisely. This is money that you and I paid and is being tossed away for no benefit at all. That's why it's a personal finance issue.

5. To me, the fact that the IRS is wasting money isn't a left-leaning or right-leaning issue (as, for example, whether we should pay more or less taxes is.) I do cover those from time to time (again, because taxes are one of the biggeste expenses we face individually), but the issue of waste is one that I think everyone should be concerned about regardless of their political feelings, isn't it?

6. You're right, it's my blog.

7. Please tell your sister to stop by. I think I'd like her.

I hope that explains it to you.

I don't see how people filing fraudelent taxes would equate to the government wasting money. The IRS said they don't have sufficient staff or resources to police all the fraudulent claims. Even if they had more staff they can't catch everyone.

In any case $1 billion loss is a problem. So whats the solution?


People will always cheat on their taxes. The only way to counter that is to spend more money to auditing returns. You can either fund the IRS enough so they can audit more people to keep losses in check or you can underfund the IRS and accept a certain amount of losses due to people cheating on their taxes. I guess we could also make cheating on taxes a criminal offense or increase fines to try and prevent it more.


Jim

Wait, tell your sister to stop by my place to. I might like her even more ;-)

well said Jim and Kevin M. It is okay to bash the government for not spending money well but it implies that people spend it better and the reality is they don't. If they did, we wouldn't be talking about personal finance. Also, if you bash them in this case for not having resources to track refunds, you have to consider that more resources means more taxes.

Todd --

True, at some point collecting extra taxes isn't worth the cost. But if they collected the $1 billion above and spent, let's say $500 million, doing it, that would be a good deal, wouldn't it?

And here's how to do it without the government becoming bigger: outsource the work to a private company debt collection style -- where the company gets a percentage of what they collect and the government gets the rest.

BTW, Kevin, are you calling me "sexy"? ;-)

FMF - I agree with the first point. I would say that would be worth the government's time assuming they could do it for $500 million and get $500 million back.

In theory, I also like your idea of outsourcing with a commission approach. Pay a company to produce. Amen.

If only we could get the transparency into government that we need. Oh wait, monitoring their wasted spending costs money too. :)

You could have a CPA literally check each return and some stuff would probably still fall through the cracks. The IRS has a highly secretive computer program that checks for fraud, among other things, on tax returns so if this fraud is getting past that, no telling how much it would cost to recover every last cent of this money.

I'd be for it as well since I hate that people cheat on their taxes and get away with it. But the first time the expenditures outpaced the money collected, there would be another story like this one saying how much the IRS spends and trying to close the revenue gap.

Private debt collectors won't fix the problem. The IRS is already using them already and its failing miserably.

http://www.washingtonpost.com/wp-dyn/content/story/2008/04/14/ST2008041403087.html
"The Internal Revenue Service expects to lose more than $37 million by using private debt collectors
...
Since 2006, the agency has used three companies to go after a $1 billion slice of the nation's unpaid taxes. Despite aggressive collection tactics, the companies have rounded up only $49 million, little more than half of what it has cost the IRS to implement the program. The debt collectors have pocketed commissions of up to 24 percent."

So its COSTING us more than they are bringing in to the tune of $37M wasted.

On the other hand ex IRS commissioner said that the IRS could do the work themselves for much less:
"By hiring more revenue officers, the I.R.S. could collect more than $9 billion each year and spend only $296 million — or about three cents on the dollar — to do so, Charles O. Rossotti, the computer systems entrepreneur who was commissioner from 1997 to 2002, told Congress four years ago."


Jim

Does anyone actually think it would be better to hand over more of this work to the sleazy and corrupt private debt collection industry? It's bad enough when you're being held hostage by those scum over a debt that at worst can hurt your credit rating; imagine the horror of them having the power of the consequences of tax nonpayment.

We've chosen underenforcement in the recent past. Do you think that was the result of the evil government saying "oh, we don't want those taxes" or of strong pushback from powerful people who don't like being audited?

Jim --

Leave it to the government to lose money at what should be a no brainer -- a commission-based idea where there's no risk of losing anything.

Sarah --

These people not paying their taxes are criminals, aren't they? Personally, I don't mind having collectors go after them. And BTW, I wasn't advocating giving them all the powers of the IRS (to freeze bank accounts, etc.)

"These people not paying their taxes are criminals, aren't they?"

Wrong! Even when an egregious crime has been committed in broad daylight, no one can rightly be called a "criminal" until he or she has been properly tried and convicted.

And I'm not merely spliting hairs. Here's why:

When a debt is outsourced to a private collection agency, that agency can and must proceed on the assumption that they are attempting to collect a legitimate debt.

But tax law is notoriously a matter of opinion, subject to wide variation in interpretation. If the IRS has a different opinion than you, they make a claim, and you, in turn, will have a fair opportunity to make a counterclaim -- but not if you're dealing with a privatized, outsourced collection entity.

With privatized, outsourced collection entities, you are essentially guilty-until-proven-innocent, and that's why privatization of income tax collection is such an insidious breach of civil liberty.

The fact that tax law is, notoriously, a matter of opinion, is something that your accountant or tax preparer might not want you to know, because they tend to work mechanistically rather than creatively. The real art and science of tax preparation is apparent in the higher echelons, where large corporations, working completely within the law, often pay little or no tax.

The government tried privatization here and it has clearly failed. Throwing yet more money at private companies for this would be a very poor use of our tax dollars.

The IRS can do its job cost effectively but they need to be funded to do it. They can collect the debt for 3 cents on the dollar so paying that 3 cents is the obvious solution.

Basically what happened here is this: They underfund the IRS. Then when the IRS is unable to do everything they use that as a reason to bring in privatization. Then when privatization gets approved the same people who called for it setup the deal so that the companies get guaranteed profits, little oversight and the opportunity to overbill the government and face no consequences or requirements for performance levels.

Why didn't the private companies perform better? If you had a multi-million dollar govt. contract wouldn't you at least TRY to not be a loss? It seems as if the private companies simply milked the govt. contract for all the money they could and then put in as little work as possible. Surely throwing yet more money at those people is a very poor use of our tax dollars.


THis is a key reason why privatization is a bad idea. If you trust the government to do a good job then it should not need privatization. If you don't trust the government to do a good job then they can't be trusted to not screw up privatization. And you can't trust private for profit companies to not abuse a govt. contract if given the chance.

Well, I still read the blog. Kind of posted and ran, so I doubt anyone is even still looking at this thread.

I think people with strong political opinions either right or left can sometimes reach a point where no coin has two sides. There becomes no nuance, only black and white...

Adam --

I'm still reading this thread. ;-)

well, in that case :)

Hey, I really like my sister, too, but it seems that her focus doesn't make sense. At least not to me.

I may be unfairly lumping the two of you together. She supported the war. You and I both know what that war has cost.

So if you look at the federal budget, there is this elephant in the room: defense spending. And then there are all these ants. Welfare costs, people cheating on taxes, etc. And while they do add up, it still doesn't even come close to the elephant.

So why do politicians and the MSM have us spend all our time debating over ants when elephants go unquestioned? It isn't right!

well, in that case :)

Hey, I really like my sister, too, but it seems that her focus doesn't make sense. At least not to me.

I may be unfairly lumping the two of you together. She supported the war. You and I both know what that war has cost.

So if you look at the federal budget, there is this elephant in the room: defense spending. And then there are all these ants. Welfare costs, people cheating on taxes, etc. And while they do add up, it still doesn't even come close to the elephant.

So why do politicians and the MSM have us spend all our time debating over ants when elephants go unquestioned? It isn't right!

Adam --

The issue we're talking about here is waste (primarily), not which programs we should cut/eliminate.

That said, I agree that ALL spending should be on the table for review.

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