Senator Carl Levin and the US Senate Permanent Sub Committee on Investigations have been back in action, looking at non-payment of payroll taxes in the US. As is usual they commissioned a report from the US Government Accountability Office on the issue. It's findings are staggering:
IRS records show that, as of September 30, 2007, over 1.6 million businesses owed over $58 billion in unpaid federal payroll taxes, including interest and penalties.
And remember, that's unpaid but declared liabilities.
More important though is this comment:
Although IRS has powerful tools at its disposal to prevent the further accumulation of unpaid payroll taxes and to collect the taxes that are owed, IRS's current approach does not provide for their full, effective use. IRS's overall approach to collection focuses primarily on gaining voluntary compliance-even for egregious payroll tax offenders-a practice that can result in minimal or no actual collections for these offenders. Additionally, IRS has not always promptly filed liens against businesses to protect the government's interests and has not always taken timely action to hold responsible parties personally liable for unpaid payroll taxes.
This is really worrying, and I suspect the same is true of many tax authorities, and especially HMRC. Explanation is relatively easy to offer.
There are powerful forces in this world who do not like tax, who want to undermine the tax system and who want to destroy our democratic concept of society that is built on the basis of progressive taxation that funds programmes of social welfare, state education and health provision (for starters). These people have created a powerful lobby that suggests that tax is a 'bad thing'. In the process they argue that the Revenue authorities should have their funding cut (as we are seeing in the UK at this moment), that programmes of voluntary compliance are the way forward with those who seek to abuse the system and that tax fraud is, for reasons that are almost inexplicable to ordinary people, a victimless civil offence to be treated quite differently from the criminal activity of state benefit abuse.
This lobby has powerful backers. The big four firms of accountants are key proponents of this idea, as are all the major banks and of course many firms of lawyers are more than happy with it. The professional bodies that are represent these people are willing participants in the process. Those who run these companies and organisations are members of the 1% club: that is the financial elite in our society who will be the sole beneficiaries of the destruction of the existing tax and social consensus. It is unsurprising that they stand where they do. They are ably supported by the avaricious owners of the majority of the media who belong to the same financial elite.
The result of their efforts is seen in the incapacity of the IRS. You cannot tell an organisation that what it's doing has no social worth or see its staff vilified day in and day out in the media as if they were incompetent without undermining the morale and capacity to act of those people and that organisation. An increase in the tax gap is the inevitable consequence.
This is, of course, the intention of the media, the big firms of accountants, lawyers and bankers who wish to change our social structures that their own perpetual advantage.
It is the duty of the politicians to challenge this lobby. It is their responsibility to manage the state on behalf of the electorate, an electorate who have shown time and again that they want a mixed economy, a substantial involvement of the state in the provision of their well-being and are willing in exchange to pay 40% or more of the country's GDP to the government.
So what is the solution? An immediate agenda might look like this:
1) Stop all funding cuts to HM Revenue and Customs
2) Stop the programme of local tax office closures
3) Increase funding for tax collection measures
4) Intervene rapidly where it is clear that non-payment is occurring
5) Offer as many mechanisms for payment as is possible
6) Encourage more regular payment of tax. It is a absurd that the self-employed pay only twice a year and companies just once a year. Everyone knows that more frequent, lower, payments on account are more likely to be collected so why hasn't the Revenue adopted this approach?
7) Make company directors personally liable for all taxation contributions more than three months overdue. The change in behaviour that this would create would be enormous
8) Impose legal charges on directors properties to enforce liabilities due as a result of the previous recommendation.
As for voluntary compliance, I am all for it, but only when it can be shown to be appropriate. I will be returning to this theme shortly. For now I have one message: please get tough.