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 December 1, 1996

KNEZOVICH: Trim the IRS, Sen. Allard? Beef it up instead

In a recent op-ed piece in The Coloradoan, readers were treated to an article by Sen.-elect Wayne Allard, DVM. The substance of the article was the need to cut taxes and shrink the Internal Revenue Service.
I am now beginning my 27th year of practicing public accounting in Northern Colorado. Reading this advice is the equivalent of my telling the Loveland veterinarian that some dogs no longer require rabies shots. My advice on immunizing dogs is as practical as hearing that Mr. Allard’s cure to our tax problems is reducing the scope and size of the agency responsible for collecting taxes.
Throughout the presidential campaign, we heard the constant message that the IRS was the root cause of our nation’s tax problems. First, it was Pat Buchanan, then Steve Forbes. Finally, Bob Dole spent his last ’96 campaign hours attempting to gain voter recognition by repeatedly suggesting tax cuts and salvation through downsizing the IRS.
Rather than bashing the IRS for political expediency, taxpayers would be better-served if they were reminded how the IRS enables the government to function.
The U.S. income-tax system began in 1913 based upon voluntary compliance by our citizens. To assure voluntary compliance, the IRS was assigned the role of auditing tax returns of individuals – some of whom were notorious for noncompliance with the income-tax laws. One of the earlier cases involved Al Capone, who was sentenced to federal prison for tax evasion.
In the last 10 years, it seems that fewer taxpayers are voluntarily paying income taxes. Hardly a day goes by without an article in the media about the “underground economy” – a euphemistic reference to those unwilling to pay taxes. Estimates now place the underground economy at 5 percent to 10 percent of the total economy.
Perhaps the biggest reasons for this large increase in noncompliance are actions of the U.S. Congress. The two areas under attack are as follows.
First, the threshold for filing personal income-tax returns has been raised. The message clearly is, don’t waste time tracking income because you won’t owe income taxes anyway. The behavior modification is the not-so-subtle attitude change among the general public that paying taxes should be shifted purely to businesses and capitalists.
The other area under attack is the IRS audit function. Repeatedly, Congress is told that every IRS agent assigned to tax audit can generate revenue 10 times greater than the cost of hiring the agent. Yet, at every budget hearing for the IRS, the Congress demands fewer resources in the audit area.
The odds of audit have now fallen to less than 1 percent of tax returns filed. Many taxpayers are wondering how serious the government is about voluntary compliance.
Over the years, the IRS’s role has been expanded to make it accountable for collecting revenue for other major government activities. Both Social Security and Medicare functions are based upon the IRS’s ability to document contributions. Both programs suffer from under funding; but each would be far worse off if the IRS weren’t responsible for collecting their revenue.
The U.S. tax-collection system needs more vigilance from a better-staffed IRS. More dollars need to be spent on taxpayer information systems so that greater voluntary compliance can be gained. We all know that dialing (800) 829-1040 for tax information is a waste of time. For those of us who advocate a reduction in the capital-gains tax rate, our only hope is that Congress does not let the system go to the dogs. Even the most rabid of tax simplification advocates must soon realize that they need a well-grounded IRS to fairly collect everyone’s taxes. This, in turn, will enable the Congress to reduce both business and capital-gains taxes.Former Fort Collins mayor John Knezovich is a certified public accountant.
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In a recent op-ed piece in The Coloradoan, readers were treated to an article by Sen.-elect Wayne Allard, DVM. The substance of the article was the need to cut taxes and shrink the Internal Revenue Service.
I am now beginning my 27th year of practicing public accounting in Northern Colorado. Reading this advice is the equivalent of my telling the Loveland veterinarian that some dogs no longer require rabies shots. My advice on immunizing dogs is as practical as hearing that Mr. Allard’s cure to our tax problems is reducing the scope and size of the agency responsible for collecting…

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