The Other Side of Tax Expenditures: Tax Collection


On Monday I wrote about [tax expenditures and their lack of transparency]( and we published a short [quiz]( on tax expenditures. Today, I’m focusing on tax collection and how we can make it easier for both the user and the government. In a recent report, the GAO [noted]( that enforcement and collection of taxes owed is getting to be a more serious issue and a huge source of lost revenue, estimated at $330 billion at the end of 2010. The GAO also issued two other reports that identified [paid tax preparers as part of the compliance problem]( and also briefed the Senate Finance Committee on [tax collection practices in other countries that the US might benefit from]( Here’s a table of some of the more interesting tax collection practices in other countries:

New Zealand Does integrated evaluations of tax expenditures and discretionary spending programs to analyze their impacts and improve program delivery
Finland Uses the internet to calculate individual tax withholding rates and revise preprepared tax returns to improve service at lower costs
European Union Uses multilateral treaty information exchange on interest payments to member nations’ citizens to spur compliance by individual taxpayers
United Kingdom Uses information reporting and withholding so most wage earners do not need to file a tax return
Australia Uses a compliance program for high net wealth individuals that focuses on their full set of business interests to improve compliance
Hong Kong Uses semiannual payments instead of periodic withholding for the Salaries Tax


Instead of looking at discretionary spending and tax spending in separate vacuums, New Zealand analyzes both types of spending by goal. This helps prevent duplicative spending and shows which method of delivery is the most effective. And Finland has the holy grail! Finland has the Tax Card system, a website where users can enter information to accurately calculate their withholding multiple times a year, adjusting for events that increase or decrease their tax liability (Finland also automatically notifies the employer of any changes so the taxpayer doesn’t have to fill out any paperwork). Then, at the end of the year, taxpayers get a prepared tax return that they can either submit as is or make changes to. Government prepared returns are proven to increase compliance in tax collection. They also allowed Finland to reduce its tax compliance staff by 11%! Taxpayer savings all around!

In the US, the state of California has a pilot program that accomplishes the same thing, called ReadyReturn. It’s safe to say that Intuit (the publisher of Turbo Tax) isn’t happy with ReadyReturn. Just check out the [Influence Explorer page for Intuit]( and look at who they contribute to:

political contributions from Intuit

(It’s worth nothing that President Obama made a proposal during his campaign to have a pre-filled tax return mailed to tax payers)

Moving the IRS into the digital age not only has benefits for tax payers and increases taxpayer compliance, but it would also make it easier to collect real, historical data on how much money the federal government actually spends on individual tax expenditures and which recipients are benefiting. This data collection is crucial in making tax expenditures more transparent.

To read more, we’ve provided a handy list of resources below. Also, head over to our [quiz]( to see how much you know about tax expenditures!