The ‘tax gap’ scandal: Make corporations and the rich pay their taxes!

At an inspiring rally in Renton in support of striking Walmart workers, one slogan stuck with me: “We’re fired up and we won’t take it any more!”

This needs to be one of our national slogans as we fight to reclaim the American Dream. In my earlier articles I have been stressing the critical need for the many progressive movements to come together in a more strategic long-term way. Here is a clear example.

As I write, the President and Congress are struggling over a possible “Grand Bargain” to prevent an alleged federal fiscal crisis. The debate is largely framed by how much to cut versus how much to raise taxes, with program cuts dwarfing tax increases.

What needs to be done? How about forcing every person and business to pay the federal taxes that they owe? How many times have you heard President Obama, Speaker John Boehner, Majority Leader Harry Reid or other elected leaders or pundits raise this issue? Why isn’t this the centerpiece of every proposal?

On January 6, 2012, the IRS posted “The Tax Gap for Tax Year 2006 Overview.” What’s this? Every five years the IRS conducts a study to determine the “tax gap” which is the amount of federal taxes that are owed and not paid either before (gross tax gap) or after enforcement actions (net tax gap).

THE GROSS TAX GAP FOR 2006 WAS $450 BILLION. LET ME REPEAT: $450 BILLION. AFTER COLLECTION EFFORTS, THE FINAL NET TAX GAP WHICH REMAINED UNCOLLECTED WAS $385 BILLION.

Ask yourself what $385 billion in additional revenue would pay for.

This is not new information. The tax gap study for 2001 conducted by the Bush administration showed a gross tax gap of $345 billion and a net tax gap that remained uncollected was $290 billion. Over the years 2001-2006, the annual uncollected total rose by $95 billion. The President and Congress are prepared to cut needed programs and let the cheaters go.

In 2011, my wife and I paid 20 percent of our adjusted gross income in federal income taxes. We paid a higher percentage than the Mittster. We pay our taxes as part of our patriotic duty to our country. We can argue about how much businesses and individuals should pay. But everyone should pay what they owe! Any disagreements here?

So who is cheating? 83% of the unpaid taxes were due to illegal failures to report income. Hmm? Guess what, over half of this underreporting ($189 billion) was business income. Are you surprised? The amount of unreported corporate income taxes avoided grew 92% between 2001 and 2006.

So who pays and who cheats? The vast majority of taxpayers get the vast majority of their income from wages and salaries which are mandatorily reported and taxes withheld to the IRS. The compliance rate on this income is 99%. Working people aren’t cheating and the system is set up to prevent it.

Many people have income from pensions, Social Security, unemployment insurance, dividends, and interest which is subject to mandatory third-party reporting. The compliance rate is 92%.

Income with little or no reporting requirements has a compliance rate of 44%. The system is set up to help the non-reporting cheaters.

How many of you knew these facts before you read this article? Do they bother you? Why didn’t President Obama and the elected Democrats hammer away on this growing outrage over the past 4 years? Why isn’t this a topic on every new show talking about the impending fiscal crisis? We have a news blackout on this issue even though the information is readily available on the internet.

Why do I raise this issue? Obviously it is critically important to the national debate which may result in deep hurt to the American people as important programs are threatened.

I also raise it because I believe it reflects some of the major weaknesses in the ways the progressive movements are organized and working together. This tax gap scandal is public information. Why haven’t our many progressive movements, individually and collectively, been hammering on this issue over the past years?

I’m sure that we could all agree that everyone paying their taxes should precede any discussion of cutting programs or benefits. We are allowing our political enemies to set the terms of this fiscal debate while $450 billion in owed taxes go uncollected.

If you agree this is a problem, how do we need to change up the ways we organize and work together across movements? More on this.

(IRS Tax Gap Study – http://www.irs.gov/pub/newsroom/overview_tax_gap_2006.pdf)

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