WITH CONGRESS struggling to narrow the yawning federal deficit, President Reagan drew attention the other day to a major untapped source of potential revenue--the millions of Americans who chiseled the government out of about $95 billion in owed taxes last year. "As we struggle to trim government spending," the president said, "it's hard not to think of how close that unpaid tax could come to wiping out the deficit."
Catching up on some of that unreported income would require stamping out the illegal activities that give rise to it--you can't expect a thief to incriminate himself on his tax return. But the great bulk of tax evasion--about $87 billion worth last year-- came from apparently otherwise honest citizens doing themselves a little favor at tax time.
The instinct to cheat on one's taxes is no respecter of income or class distinctions. It appears that the probability of cheating varies only with the opportunity to do so. Wage earners are the most honest taxpayers, but they don't have much choice because taxes are withheld on their wages. The biggest class of offenders is made up of owners of small businesses, independent contractors, salesmen and professionals. Tips are the worst-reported source of income, and their beneficiaries have relatively low incomes; but the generally well-heeled recipients of capital gains, dividends and interest don't distinguish themselves by their honesty either.
The administration hasn't come to grips with the fact that it not only needs to restore the cuts in IRS staff made last year but also to expand that staff considerably, but it has submitted proposals to Congress to tighten up on tax collections. The administration has a powerful ally in its efforts in Senate Finance Committee Chairman Robert Dole, who has added some proposals of his own. Thus far, however, the rest of Congress has maintained its traditional indifference.
Congress has, in fact, shown so little interest in promoting honest tax collection that you might guess that it considered the tax laws too unfair to enforce. Since Congress has ample opportunity to amend those laws--and since they are regularly applied to honest taxpayers at every income level--a better explanation is that the obvious and only proven remedy for tax evasion is requiring withholding of taxes on heavily underreported sources of income. This activates several powerful lobbies that claim withholding is an insupportable administrative burden--a claim so unconvincing in this electronic age as to arouse suspicion that their financial fortunes are heavily dependent on the opportunity to cheat.
Congressional vulnerability to these lobbies, however, is increased by the fact that the members hear little objection from the other side--the side presumably peopled by the honest taxpayers. Perhaps that's because too many people have become complicitous, if not active, participants in tax-dodging--agreeing to pay for services in cash, smiling at tales of tax evasion. That's not a healthy attitude for the country generally, and it is especially unfair to the honest citizens who now have to foot the tax freeloaders' bill.