A Stitch in Haste

In Part One I noted that Democrats in Congress are calling for greater effort by the IRS to close the "tax gap," a euphemism for people and businesses under-reporting their income and overstating their deductions and exemptions.

But what, exactly, does "greater effort" mean?

Middle-class Americans, listen up: the I.R.S. is much more likely to audit you this year. Those caught cheating can expect to pay about $4,100 more on average in income taxes.

Since 2000, authorities at the Internal Revenue Service have nearly tripled audits of tax returns filed by people making $25,000 to $100,000 as part of a broad change in audit strategy.
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For taxpayers with incomes above $100,000 the odds of being audited in 2006 were 1 in 59; above $1 million, the odds increased to 1 in 16. People in lower income brackets -- those reporting incomes below $25,000 -- faced a 1 in 94 chance of being audited.

But this is, of course, pretty much how it should be. Most tax cheating occurs among the middle class, the working poor, and small business owners. Generally speaking, the rich can't easily cheat on their taxes (too much mandatory disclosure), and the very poor have no income to hide in the first place. It's the cash-based, off-the-books blue-collar and unskilled workers who can -- and do -- under-report their income. It's the nail salon owners, not Exxon, who can under-report their cash-based revenue, and it's the retired police officer who can claim a phantom $250 in charitable donations.

Meanwhile, what exactly does a visit from the IRS entail?

When IRS agents poked around, they discovered four cars in Huynh's name, including a $77,000 Mercedes; receipts for diamonds and Rolexes in a closet at his Waldorf home; and a videotape of Huynh flashing a five-carat ring during the purchase of yet another vehicle at a local Honda dealership, court records show.

"Poked around"? That's a worse euphemism than "tax gap."

Although IRS audits are often simple and even unobtrusive, they can also be government at its most nightmarish. The federal government has recently unleashed the IRS upon the Internet (in more ways than one). The IRS can and does seek warrants for any and every kind of record, financial or otherwise. They can easily intrude upon a business or farm -- or even a private residence. All in the name of "closing the tax gap."

And as Congress, the President or both grow ever more shrill in their demand that the "tax gap" be closed, the IRS will inevitably become ever more intrusive and more draconian in their tactics. It's axiomatic.

Wouldn't the better alternative simply be to shrink the size of government, and with it the tax burden, the "tax gap" and the need for ever more intrusive tax surveillance?

It's quite simple, really: Keep taxes low, and the perceived need for a new audit mania will evaporate.