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Wednesday, July 06, 2005
Smilin' Norm: Loves the issue, hates the solution
Sen. Smilin' Norm Coleman (R-MN) is complaining loudly that federal contractors are not paying their taxes. According to the GAO, this amounts to $3.3 billion for some 33,000 contractors. 27,000 of the contractors are in defense industries. Together, they owe $3 billion (91%) of the total.
Quick comparison: the U.S. spent $455 billion on the military in 2004. The $3 billion in back taxes is .6% of the military budget. The U.S. accounts for 47% of global military spending, which is more than the total spent by the next 32 nations combined. Of the top 5 nations in military spending, three are close allies (Britain, France, Japan) and one is a huge trading partner (China).
Coleman, of course, has a solution which solves one problem: how to keep the issue alive so that he can run on it in 2008:
To solve the problem, the IRS must aggressively prosecute tax cheats and provide an annual list of federal contractors that have been convicted of tax-related crimes or have had tax liens placed against them to contracting officers. With this information, they could cancel existing contracts and deny work to companies that are more interested in running a shell game than they are in serving the nation.
The IRS itself states:
Last year, the IRS produced direct enforcement revenues of more than $43 billion from collection, audit and document-matching efforts. This reflects better than a 4-1 return for every dollar invested in the total agency budget. Increased enforcement funding makes good sense and contributes to deficit reduction.
The reality, however, is that the Republican-controlled Congress has systematically undermined the IRS ability to enforce the tax laws:
Only 0.73 percent of business tax returns were audited in the fiscal year that ended Sept. 30, down from 0.88 percent in the previous year, TRAC found. In 1997, 2.62 percent of business filers were audited.
Among corporations with assets of at least $250 million, audit rates slid to 28.98 percent last year from 33.68 percent in 2002. In 1995, more than half were audited.
From 1999 to 2003, the number of civil negligence penalties aimed at corporations fell from 62 to 12. Civil fraud penalties dropped to 170 last year from 247 in 1999. Tax prosecutions fell last year to 538, from 563 in 2002. Ten years ago, more than 1,000 cases were prosecuted.
...IRS officials have pointed to individual audit rates, saying taxpayers earning at least $100,000 were 52 percent more likely to be audited last year than they were two years ago. Revenue from tax collection actions reached $35.5 billion in 2003, a 9 percent increase.
The IRS has been auditing businesses less since the Republicans held their phony hearings a decade ago. If Smilin' Norm really wants to cut down on tax cheats, it's easy to do: aggressively fund IRS enforcement efforts targeted at the most likely abusers. Here's a free hint: people claiming the Earned Income Tax Credit are not likely to be defense contractors.
