Time to Target Rich Deadbeats

Republican calls to “end the IRS as we know it” always seem attractive as April 15 approaches. But they have appeared especially so since last month, when IRS information chief Arthur Gross admitted that $400 million of the $3.3 billion that Congress gave the agency for computer modernization had been wasted on “non-continuing projects.”

Nevertheless, recent IRS studies suggest that the agency’s real problem is not waste but chiseling. The vast majority of Americans--those whose taxes are deducted from their paychecks--accurately report their income. But a group of generally wealthy self-employed people who declare most of their earnings on the line marked “business income” has been increasingly cheating. Underreporting among this group, say recent studies, is largely responsible for the growing total of unpaid individual income taxes, up from $70 billion in 1985 to almost $90 billion in 1992.

In 1994, Congress funded an experimental program to beef up oversight of business income, and this helped the IRS gain $8 for every dollar spent directly on its investigations. But when the GOP gained control of the Congress after the fall elections that year, it rescinded the program’s funding.

Congress now would do right by once again beefing up IRS oversight of business income. That, alas, is unlikely because lawmakers appear to believe that funding of any kind to sharpen tax collection, even that directed at the very wealthy, would be political hara-kiri.

Meanwhile, many business-income filers are turning back to traditional paper returns to elude the agency’s computerized investigations. Thus more farsighted reforms are needed.

At the very least, Congress should approve incentives proposed last month by Deputy Treasury Secretary Lawrence H. Summers to increase the number of electronically filed returns. That element of the IRS computer system does work, although it covers only 13% of tax returns. In 1995 alone, increased oversight of electronically filed returns unveiled myriad frauds, including 1.8 million people who had been improperly listed as dependents.

The Clinton administration is now considering candidates to succeed IRS Commissioner Margaret Milner Richardson, who is expected to retire soon. The White House needs to choose someone savvy enough to overcome the cynicism now rife on Capitol Hill and fulfill the IRS’ self-described mission: “To collect the proper amount of tax revenue at the least cost.”