12/30/2010 02:06 pm ET | Updated May 25, 2011

Why Tax Amnesty Went Wrong in New York

New York State is currently in a serious financial condition. Each time it looks like there is an idea that might plug some of the deficit, the state shoots itself in the foot. And with the passage of time, the deficit grows bigger and bigger.

In 2010, New York State had the opportunity to collect over $250 million in delinquent taxes. Instead, they fumbled it. They collected only $45 million through the 2010 Penalty Interest Discount Program. To say the program was poorly run, poorly publicized, and poorly planned would be an enormous understatement.

To illustrate just how sloppily this program was supported and marketed, one had only look at The Department of Taxation and Finance's website, where it actually advertised that there was "no tax amnesty program" despite agreeing to conduct one under legislative orders. To make things worse, the Department told the state legislature that tax amnesty would raise $250 million.

If this story isn't galling enough, take a look at our neighboring states New Jersey and Pennsylvania which, in the past, have raised $725 million and $261 million respectively through blanket amnesty programs. California saw total revenue of $4.3 billion in 2005. Pairing the minor-league $45 million gain in New York State, a state badly in need of revenue, against the successful returns, well, it only highlights the incompetence of New York's bureaucrats.

So, how did Pennsylvania rake in $261 million? It started with Governor Rendell who went on television and radio; created call centers; and aggressively collected as much as he could in tax dollars. If New York relies on spotty, half-hearted initiatives, then it will only continue to miss out on hundreds of millions of dollars in revenue, and the public will be the loser.

There are some law-abiding taxpayers that view a tax amnesty program as penalizing honest taxpayers by giving delinquent taxpayers a second chance. This argument has three major flaws. First, if the state ignores amnesty programs, then it must look elsewhere. Recently, we saw Governor Paterson propose cuts in vital programs and layoffs. In the past, we have a seen a slew of band-aid gimmicks proposed -- all of which still penalize the tax abiding citizen. Additional vehicle registration fees, tobacco excise tax, and a tax on soda and sugary drinks do not produce the return on investment that a tax amnesty program would; not even close.

Second, tax amnesty is the most efficient, cost-effective way to obtain uncollected tax debt and create a precedent for future revenue collections. The reality of it is: "Once a taxpayer, always a taxpayer." So, given the chance, delinquent taxpayers come out from the shadows and become long-term taxpayers. According to the Department of Taxation and Finance, somewhere between $2.5 and $4.2 billion is owed to New York State in delinquent tax collections. That's money that will not otherwise be collected. It raises a simple question: How inept can bureaucrats be and how much lost moneys does it take for alarm bells to go off?

Third, tax amnesty does not wholly excuse delinquent payments or promulgate breaking the law, which some anti-amnesty parties believe to be true. No, instead, tax amnesty actually sets the ground for stricter enforcement, stricter collection penalties, and greater collection efforts. Collecting delinquent payments is not a free pass for the reason that is coupled with new and tougher laws on future delinquents. The message is "pay now, because later will be even more painful."

Since 1985, New York State has collected a grand total of $1.6 billion from three general tax amnesty programs and four targeted amnesty initiatives. Since September of 2009, New York has issued five requests for proposals for debt collection assistance from third-party vendors -- and they have little to show for it. Clearly, there's a fruitful "end" to be had, but until New York's legislators join together to support a planned amnesty program, the deficit will only get bigger and the number of non-payers will grow.