It's the old Hollywood story: Actor gets rich and famous. Actor attracts an entourage of self-serving, unsavory associates. Actor gets himself into lots of trouble.
And the Hollywood ending is that Wesley Snipes was sentenced to three years in jail for vocally, willfully, foolishly refusing to file income tax returns. Snipes himself summed up what happened this way:
"I am an idealistic, naive, passionate, truth-seeking, spiritually motivated artist, unschooled in the science of law and finance," Snipes said. He said his wealth and celebrity attracted "wolves and jackals like flies are attracted to meat." He called himself "well-intentioned, but mis-educated."
To say the least. But for the record, let's say what shouldn't need to be said: you have to pay your taxes. If you've heard otherwise - and there are some vocal fringe groups out there claiming you don't -- the IRS has a list of responses to the most common "tax protest" arguments.
Unlike Wesley Snipes, most Americans know they have to pay their taxes, even without being schooled in "the science of law and finance." The IRS estimates that Americans overall pay about 84 percent of what they owe. That's considered a pretty high percentage, but the missing money isn't chickenfeed. The ballpark figure (roughly $290 billion a year) is more than enough to pay for one year of Medicaid ($182 billion) or interest on the federal debt ($227 billion). Most people who dutifully filed their taxes every year would no doubt love to see the IRS hunt down all the cheaters. Many probably enjoyed seeing the "passionate, truth-seeking, spiritually-motivated" Snipes finally get his just desserts.
Unfortunately, tracking down cheaters and collecting what's owed is easier said than done. The IRS would need more money for enforcement, and they'd need to do more audits. The IRS has fewer agents and revenue officers than it did 10 years ago and for years it let audits slide. In the last few years, the IRS has been ramping the audit machine back up again, but is only now reaching the audit levels it had in the 1990s. In 2007, 1.03 percent of all individual returns were audited, the highest rate since 1998 (but still below the 1.67 percent in 1996). And business audits are still well below 1990s levels for both large corporations and small businesses. Meanwhile, more Americans are using off-shore shelters to avoid payment -- a ploy that makes it even harder for the IRS to collect what the government is owed.
There's also the question of how much closing the tax gap would really do to get the country back on a sustainable financial path even if the IRS could bring in every last cent. The government has run a deficit for 31 out of the last 35 years. The red ink for 2008 alone could be nearly half a trillion dollars (it's already $400 billion and counting). Costs for Social Security and Medicare will begin skyrocketing as the boomers begin leaving the work force in big numbers. We don't even really know how much the tax gap is. The $290 billion estimate is based on 2001 returns - but nobody has newer figures.
Tax cheats and tax protesters get no sympathy from us. But let's put this in perspective. Chasing tax cheats is a lot like the old "let's cut waste and fraud" plan for fiscal responsibility. Of course the government should collect all the taxes it's owed, but we've got to do lots of other things, too. It's another one of those "easy answers" politicians toss out to avoid making hard choices like raising taxes or cutting programs. This year, the easy answers are multiplying like rabbits. All the presidential candidates are counting on the tax gap and "closing loopholes" to some extent in their budget plans. Senator Clinton, for example, is counting on "common sense steps to close the tax gap" to fund her effort to cut child poverty in half. Senator Obama says he'll "stop the abuse of tax shelters and offshore tax havens." Senator McCain also says he wants to close loopholes, but says a dramatically simpler tax system would close the gap.
Okay, fine. They're all worth a shot. But look at the big picture. Senator McCain wants to extend the Bush tax cuts and add some more of his own, and he's planning to keep troops in Iraq for a longer period of time. Even if it's nowhere near his notorious "100 years" comment, it will still cost money. So far, he's suggested making ends meet by going after Congressional earmarks, as yet undefined "waste" in discretionary programs, and finally addressing the soaring costs of entitlement spending. Okay, but his website says "he will fight to save the future of Social Security while meeting our obligations to the retirees of today and the future without raising taxes."
Senators Clinton and Obama say they'll raise taxes on people who earn more than $250,000 a year. But they're both proposing a whole slew of new spending on health care, education, research, job creation and the like. According to new estimates from the Washington Post, Senator Obama's plans would add nearly $333 billion to the budget; Senator Clinton's ideas come in at about $265 billion. It's hard to see how the numbers for either Democrat could possibly add up to a balanced budget any time soon. And in another inspiring highlight from the last TV debate, both Senators acquiesced to a "read my lips, no new taxes" pledge for voters under their $250,000 cut-off point.
All of the candidates are smart and sophisticated, and they all have their brainy policy advisers at their beck and call. They can't be "well-intentioned, but mis-educated," as Wesley Snipes put it. (And if they are, that ought to disqualify them from running right there). And we believe that all three of these individuals --Senator McCain, Senator Clinton, and Senator Obama -- care deeply about the future of the country and want to do their best for it. That's what makes their fancy dancing on taxes all the more disappointing. When it comes to the budget, we're still waiting for an action hero.