On taxes, the cheaters and the shirkers cost everybody else

April 14, 2021

By E.J. Dionne Jr.,

Tax Day, traditionally April 15, has been postponed by the pandemic, but government’s need for revenue is eternal. Also eternal: Voters like government benefits more than footing the bill.

In the 1980s, when Americans sent anti-tax Ronald Reagan to the White House but kept Democrats in control of the House of Representatives, the puckish journalist Charles McDowell observed that the electorate knew what it was doing. “We elect Democrats to Congress to give us stuff,” he said. “We elect Republicans to the White House so we won’t have to pay for it.”

But, eventually, the bill comes due. With the Biden administration proposing a significant increase in public spending for long-unmet needs — as varied as roads and bridges to caregiving for kids and seniors — a reckoning with what is euphemistically called “the revenue side” is inevitable.

Unpopular as it might be to say so, especially at this time of year, the least painful way for the government to raise money is to give the Internal Revenue Service a bigger budget. Least painful, that is, for law-abiding taxpayers.

At a hearing Tuesday before the Senate Finance Committee, IRS Commissioner Charles Rettig reported that as much as $1 trillion a year in federal taxes was not being collected because of error and fraud — and because the IRS lacks the staff to go after the money.

This problem is not just lost revenue. “Compared with other countries, the United States has high rates of tax compliance and high rates of tax morale — the idea that you should pay your taxes,” said Vanessa S. Williamson, the author of “Read My Lips: Why Americans Are Proud to Pay Taxes” and my Brookings Institution colleague. In taxes, as in other areas of life, cheating begets more cheating. None of us should want to undercut our citizenry’s honorable inclination toward honesty when it comes to paying taxes.

Just this once, we might see a spurt of bipartisanship, since tax cheats aren’t popular. Not only did Sen. Ron Wyden (D-Ore.) call Rettig’s figure “jaw-dropping,” the committee’s ranking Republican, Sen. Mike Crapo (Idaho), endorsed addressing the “large tax gap.”

Alas, cross-party cooperation isn’t likely on much else when it comes to raising revenue. Our political polarization is one reason why President Biden is wise to stick with his campaign pledge not to raise taxes on families earning less than $400,000 a year. He doesn’t want to give Republicans any openings to cast the tax increases he’s proposing on corporations and the very wealthy as levies on the middle class.

Will broader tax increases be necessary at some point? Almost certainly. Health-care costs alone will put a bigger burden on government. Our population is aging, more Americans are likely to need higher subsidies to afford insurance, and more will have to rely directly on government for coverage.

But given how much money has flowed to those at the top of the economy, it makes sense to turn first to the very privileged — in part as a middle-class confidence-building measure.

And, after the corporate tax-cutting extravaganza in the Trump years, there is a lot of room to raise rates on companies and still keep them below their historical levels.

Just how much have corporations shucked off their responsibility for sharing the load? As Steve Rattner, the economic commentator and chartmaker on MSNBC’s “Morning Joe” pointed out, corporate taxes accounted for 23 percent of federal revenue in 1966 but just 7 percent in 2019. The previous year, 91 of the Fortune 500 companies paid an effective rate of zero — or less. That wasn’t a typo. Burdening middle-income taxpayers before asking more of corporations would be political and policy malpractice.

The downward trend Rattner describes is a product of what Treasury Secretary Janet Yellen called a “30-year race to the bottom” as globalization and the proliferation of tax havens made it ever easier for corporations to escape taxes. This is why one of the Biden administration’s most important long-term initiatives is its proposal for a uniform minimum corporate tax across national boundaries.

In a speech this month advancing the idea, Yellen spoke of every democracy’s need for “stable tax systems that raise sufficient revenue to invest in essential public goods.”

Democracies will always debate which public goods are “essential,” but Yellen’s formulation reminds us that citizens can grumble about government and still place a high value on many of the things government does. They will be more willing to pay the bill if they think everyone else who can afford to is doing the same.

Read more: Greg Sargent: Inside the GOP playbook: Attack ‘woke’ corporations, protect their low tax rates Henry Olsen: Progressives are afraid of taxes E.J. Dionne Jr.: Respectfully, Justice Breyer, court enlargers aren’t the problem The Post’s View: It’s not too soon to start thinking about tax reform Greg Sargent: Republicans have found yet another way to scam their own voters

Source: WP