Dukakis's billion-dollar tax amnesty program
IN a move reminiscent of the 1980 campaign of Ronald Reagan, George Bush has raised the notion that he is running against Washington at a time when big government is still perceived by voters as being a bad thing. At issue here is taxes - not raising them, for Mr. Bush has fiercely pledged never to do so. At issue is a stronger enforcement program to increase taxpayer compliance, reduce a burgeoning federal deficit of $150 billion, and lessen the need to raise taxes during the next administration.
Bush has attacked the Internal Revenue Service and assailed Michael Dukakis's tax collection plan by announcing his own ``taxpayer bill of rights.''
``I have confidence in the honesty of the American people,'' the vice-president proclaimed. Yet conservative IRS estimates show that each year more than 10 percent of taxes due remain uncollected - accounting for nearly $100 billion yearly.
Most ironic is that while Bush has been attacking his opponent throughout the campaign as being liberal and ``soft on crime,'' he now indicts Governor Dukakis for formulating a stringent plan to pursue tax evaders and cheats. Mr. Dukakis believes that tax evasion is not a victimless crime. The victim is the honest taxpayer who ultimately suffers from higher budget deficits and reduced services. ``It's ridiculous to be going through the agony of Gramm-Rudman when so many taxes aren't collected,'' Dukakis contends.
Dukakis has promoted the idea of going after tax delinquents ever since his state achieved remarkable success in 1984 in the much-imitated Revenue Enhancement and Protection (REAP) program administered by the Massachusetts Department of Revenue under then-commissioner Ira Jackson.
That program - which has resulted to date in about $3 billion in additional revenues for the state - dealt with tax cheats in a two-part assault. First, it brought in an amnesty program that gave errant taxpayers a one-time opportunity to come forward voluntarily and settle all accounts without prosecution. Second, it beefed up the enforcement program, which gave the department broader powers of collection, audit, and criminal prosecution of tax evaders to increase the rate of future compliance.
``It was a combination of what I call a carrot, a stick, and an appeal to conscience,'' says Mr. Jackson, one of Dukakis's cleverest advisers and now an executive at the Bank of Boston. ``It means treating honest taxpayers like they were valued customers and not victims of an unaccountable and surly bureaucracy - what many citizens believe the IRS now is. It means, secondly, tough laws, visibly and vigorously enforced. And it means an appeal to conscience: dealing with the people truthfully and appealing to their sense of citizenship and patriotism, if you will.''
``Curiously,'' Jackson mused, ``those who wrap themselves most tightly in the flag seem the least capable of summoning up the courage to say: `Why don't we all obey those laws?'''
According to Jackson, honest citizens who dutifully pay their taxes - 83 percent of us - are subsidizing evaders and cheats. And while the number of taxpayers audited each year has declined precipitously, the ``tax gap'' - legally owed and not paid the government - has increased dramatically.
As president, Dukakis would include a tax amnesty plan as part of his fiscal program - particularly since support is building for such an experiment from Congress and from experts outside government. Arthur Laffer, a conservative California economist who helped construct Reaganomics, recently estimated that between $40 billion and $60 billion could be raised immediately through an amnesty program at the federal level.
According to Mr. Laffer, ``the effects of a tax amnesty are totally different from the effects of any other tax, literally encouraging output and production. An amnesty program would collect money from individuals and businesses based on previous years' income and work. Collection on these forgone revenues would reduce the pressure to raise current taxes, thereby stimulating output.''
For Dukakis, the appeal of such a program seems irresistible, particularly in light of the experience of his own state and 18 others that have successfully used amnesty programs to infuse more than $1.2 billion into state coffers. While these figures are impressive, they may only begin to foretell the success of a national amnesty program, since, as Laffer suggests, ``the federal program was no partner'' in the states' activity.
Bush's accusation that a tax enforcement plan would be unduly expensive, that it would create an ``auditor army'' of 105,000 new IRS employees, also seems to be off the mark, in view of the Massachusetts experience and recent congressional studies. Sen. Alfonse D'Amato (R) of New York, in introducing an amnesty bill, put the required number of new IRS agents at closer to 3,000. And Jackson, recalling the success of the REAP program, noted that for every dollar spent by the Massachusetts Revenue Department for additional enforcement, 26 new tax dollars were reaped for state coffers.
Experts caution that an amnesty program would work effectively only when coupled with new, ``get tough'' policies for future tax collections.
``Left standing alone,'' contends Jackson, ``tax amnesty would be a gimmick, absent subsequent vigorous and visible enforcement, good public service, and a broad-based public education campaign.''
But few question that once tax evaders are brought back on the tax rolls, the likelihood of future nonpayment or evasion is minimized, thus broadening the base of the total tax system and moving us closer to addressing the great fiscal challenges ahead.