November
15, 2002, 8:30 a.m.
Time
to Tame the Tax Police
We need an IRS
commish who knows the law.
By Veronique
de Rugy
RS
Commissioner Charles O. Rossotti recently announced that he is leaving
the agency. This is great news for taxpayers and the Bill of Rights. Rossotti's
scandal-tainted tenure has been highlighted by flagrant attacks on the
4th Amendment and gross abuses of the regulatory process. Adding insult
to injury, his parting request is a bigger budget for the IRS. Hopefully,
the Bush administration will choose a new IRS commissioner that respects
the rule-of-law and understands that tax reform is needed to fix the problems
in the tax code.
Rossotti's legacy
certainly is disappointing. For instance, he is responsible for issuing
a regulation to help foreign governments tax income earned in America.
This misguided initiative, which would require U.S. financial institutions
to automatically report the interest paid to foreign investors, is contrary
to U.S economic interests. Faced with a loss of privacy, foreigners will
take their money out of American banks, meaning less loan money available
for families and businesses. And since the information the IRS wants to
collect is not needed to enforce U.S. tax law, it seems fair to ask whose
interests the commissioner was serving.
To add insult to injury, the IRS has always refused to legally conduct
a required cost-benefit analysis of that proposed regulation, showing
a profound disregard for the law. And why? To hide the fact that the regulation
would have a terrible effect on U.S. economic performance and could drive
several hundred billion dollars out of the U.S. economy. Clearly, throughout
this process the commissioner demonstrated his willingness to put the
interests of European tax collectors above the interests of the American
people and jeopardize an already weak economy.
Rossotti's legacy
also includes numerous fishing expeditions undermining the Constitution's
guarantee that government cannot investigate our private affairs unless
it has sufficient evidence to obtain a warrant. His most recent campaign
took place last April when the commissioner decided to target American
taxpayers who use credit cards issued by foreign banks. To that effect,
the IRS requested and received 1.7 million records from American Express
and MasterCard that involved more than 230,000 credit cards issued by
banks in the Bahamas, the Cayman Islands, and Antigua. But that was not
enough. The agency next went after Visa demanding that the company turn
over millions of confidential records with the names, addresses, Social
Security numbers, and telephone numbers of American cardholders with accounts
in 30 countries.
Was the request legitimate?
No. Is it illegal for Americans to have credit cards issued overseas?
No, the IRS admits that it's legal. Is this because the IRS has proof
that these American credit-card holders are tax evaders? No, the IRS has
no proof of illegal activity. In other words, the IRS — under Rossotti's
reign — had no problem making a mockery of the Constitution's presumption
that people are innocent until proven guilty. In fact, the assumption
is that anyone rich or with an offshore credit card — or, even better,
rich with an offshore credit card — is involved in tax evasion.
But before he goes, Rossotti told the New York Times that "the
I.R.S. needs $1.9 billion — an increase of 51 percent for its enforcement
budget — and authority to hire 29,306 more people, on top of the
48,000 it already has in compliance and enforcement." In other words,
he wants more taxpayer money supposedly to fight tax evasion.
Sadly, the commissioner
forgets that good tax policy and low tax rates are far better ways to
fight tax evasion. Instead of blaming tax havens and financial privacy
for tax evasion in America, IRS officials should take a look at the facts.
In 1999, taxes at all levels already consumed nearly 38% of the average
dual-income family's income, and taxes today may be consuming an even
greater share of the economy's output.
Also, the tax code
today is outrageously complicated and unfair (45,662 pages that require
taxpayers to choose from 703 different forms), drastically increasing
the cost of compliance. High taxes — and a tax code that punishes
saving, investment, and work — give taxpayers an incentive to shift
their activities to low-tax countries. That is the problem we should fix.
But the IRS has no interest in tax reform because tens of thousands of
bureaucrats would lose their jobs if we had a simple and fair flat tax.
If the Bush administration
and Treasury Secretary Paul O'Neill are serious about reforming the tax
system, they should appoint someone who understands these simple facts.
Then, less money will be wasted and our right to financial privacy will
be restored.
—
Veronique de Rugy is a fiscal policy analyst at the Cato Institute.
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RS
Commissioner Charles O. Rossotti recently announced that he is leaving
the agency. This is great news for taxpayers and the Bill of Rights. Rossotti's
scandal-tainted tenure has been highlighted by flagrant attacks on the
4th Amendment and gross abuses of the regulatory process. Adding insult
to injury, his parting request is a bigger budget for the IRS. Hopefully,
the Bush administration will choose a new IRS commissioner that respects
the rule-of-law and understands that tax reform is needed to fix the problems
in the tax code.
