Wednesday, April 9, 2014

A Tax Idea: Pay Bonuses for Clean Audits

        Everyone dreads a tax audit. Some people have cheated on their taxes, so they obviously are running scared. Others have pushed close to the line in making deductions, and expect to have some of them disallowed. Still others need have no fear of paying more, but have to expend time and effort showing that to the auditor.

    This is easily remedied.  Our objective is to catch the cheaters, make the aggressive deductors step back from the line, and reward the good citizen who pays just what he’s supposed to. Let’s start with the good citizen. I propose that we pay anyone who gets a clean audit. If you are audited, and the auditor gives you a clean bill of health, he also presents you with a $1,000 check.  Perhaps it should be more, perhaps less, but the aim should be to make someone pleased with the chance to prove his honesty to the government.

  Will the auditors manufacture defects in your return so as to block your bonus?  They could, but it’s not their $1,000; it’s the Treasury’s. The Treasury could announce a policy of rewarding auditors who find defects, but there’s no way that policy wouldn’t become public, and the Treasury is, after all, a political organization. Anyway, if the Treasury is out to make people pay illegally high taxes, that’s a problem regardless of whether we adopt the bonus scheme; even now, Treasury could instruct its auditors to charge fake taxes and increase the revenue.

  What about the  second group--- the aggressive deductors?  With this scheme in place, they’d have less incentive to be so aggressive. It would be easier to be conservative with deductions and take the occasional audit bonus instead.

 And what about the third group--- the cheaters? They, too would have more incentive to clean up their act. But we might combine the bonus program with stepped-up penalties, as a  way to make it revenue neutral. It’s hard to object to tax cheats paying more so that honest taxpayers bear less of the burden of the audits the cheats make necessary.

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