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Kamloops News

THOMPSON: Time to start collecting what wealthy owe in income tax

March 29, 2021 - 12:00 PM



There are almost 32 million small businesses in the United States, and nearly 90 percent of them have fewer than 20 employees. Every January, those businesses provide every employee with an Internal Revenue Service (I.R.S.) Form W-2, detailing wages paid for the year and how much was withheld for Federal income taxes from the year’s pay checks.

Individuals then file tax returns - usually by April 15 - and are either all square, owe more taxes or get a refund, depending on their filing status, number of dependents and allowable deductions. It is a system that generates a few trillions of dollars - and along with borrowing - funds the Federal government’s annual operating costs and debt.

Currently, Canada’s CRA generally does a better job of policing taxes owed by small businesses, even requiring them to make monthly corporate tax instalments based on the prior year’s taxes payable.

Also, CRA allows businesses to reconcile for bad debts, as well as revenue and expenses, at the end of the year. Often even decisions on the best way to pay owners - salary, management expense or dividends - are made at year-end, too. The amount of business tax cheaters in Canada - both in actual and proportional numbers - is already likely less than the U.S.

In the U.S., the government started withholding taxes each pay check during World War a matter of fairness...everyone pays. But if fairness was really the goal, you might think the government would do the same with the owners of the nearly 32 million small businesses.

The bottom line...most wage earners pay their fair share of taxes...and many business owners don’t. So, by not verifying small business income with a similar withholding process...the U.S. government loses about $600 Billion or more every year.

Of course, that means wage earners - mostly lower income folks - pay an unreasonable share of the cost of government...defence, infrastructure, social programs...everything. Indeed, the current system perpetuates the long-standing “the rich get richer” lament of most wage earners.

The argument that the IRS should simply hire more agents and audit more taxpayers probably isn’t the best idea because the benefit might not justify the cost. What could make sense is a third-party verification process...with the government requiring banks to file an annual account statement totalling all inflows and outflows...much like 1099 tax forms that investment houses provide their clients.

Charles Rossotti, the Director of the I.R.S. from 1997 to 2002, proposed just such an idea.

Rossetti says business owners can easily reconcile allowable deductions - like tax free gifts - when the file every April. And as to not place an undue burden on truly small business - those with 20 or fewer employees - establish a taxable income threshold of $400,000.

House of Representatives member Ro Khanna, a Democrat from California, recently introduced a bill that does exactly what Rossotti suggests. It is cleverly named, the “Stop Corporations and Higher Earners from Avoiding Taxes and Enforce Rules Strictly (CHEATERS)” Act. While the big money is in chasing larger corporations who aren’t paying their fair shares...letting small business owners evade taxes doesn’t make sense.

This should make all politicians (save the nutcases known as Trump Republicans) happy. After all, this is not a tax’s merely everyone paying what they owe. The current non-system rewards small business tax cheaters.

In reality, some of these tax cheaters will likely be scared into doing the right thing...paying taxes they actually owe. The I.R.S. benefitted from a similar tactic in 1986 when it started requiring social security numbers for dependents...rather than taxpayers simply claiming  a number of dependents. Mysteriously (note sarcasm), seven million children disappeared on American tax forms that year. Hmmmmm.

Republicans have cut government budgets rather than increase taxes on the wealthy for the past decade. Indeed, they gave 83 percent of a $1.9 Trillion tax cut to corporations and millionaires in 2018. So, no surprise...they’re not likely to support “Stop CHEATERS”’s just too much, well, let’s call it common sense?

Also, Rep. Ro Khanna’s bill calls for funding the I.R.S. with an additional $100 Billion over the next ten years for updated computers and personnel...but that would guarantee the collection of at least $1.4 Trillion in taxes otherwise lost during that ten-year span.

Generally, I think it makes sense to make the wealthy pay more in taxes that lower income folks. But it makes even more sense to start collecting what wealthy folks already owe.

— Don Thompson, an American awaiting Canadian citizenship, lives in Vernon and in Florida. In a career that spans more than 40 years, Don has been a working journalist, a speechwriter and the CEO of an advertising and public relations firm. A passionate and compassionate man, he loves the written word as much as fine dinners with great wines.

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