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In an exclusive interview on The Hutchinson Report Newsmaker Hour with host Earl Ofari Hutchinson on KTYM 1460 AM Los Angeles on April 15, Mark W. Everson, Former IRS Commissioner
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EOH: What are the major functions of the Internal Revenue Service?
MWE: The perception of the IRS is like the post office in that it is one of the governmental entities that everybody interacts with. It has that prominence because of extensive interactions. Those interactions have extended from filing of individual income taxes to other areas of responsibility; responsibility for overseeing the charitable sector. It does corporate tax returns, administers the earned income tax credit which is the largest benefits program in the country, and now it will be doing certain things under the health care reform where it will be checking eligibility. More and more over the decades, responsibilities have increased beyond what it started out as. It started in the Civil War, the first commissioner being appointed by Abraham Lincoln, to help raise Revenue for the north. It went out of business in the 1800’s and, after a Constitutional Amendment, it was re-instated early in the 1900’s. The responsibilities have increased over the years as Congress has done more. Over time it has been the view of Congress to put things in the tax code that might not be seen as attractive or characterized as a social program.
EOH: What is your opinion on the difference in enforcement on the middle class versus the upper income wage earners?
EOH: Reducing the percentage from 28% to 35%, Capital gains and dividends, and mortgage interest. Were these some of the areas you had to wrestle with?
MWE: The commissioner tries to assess all those policy options from the point of view of administration. Can you make the tax code work? I stood for simplification of the code. We have made this way too complex and unworkable. Complexity obscures understanding. The corporate tax code, which is extremely detailed, presents opportunities for nefarious activity all the way around. It’s so complex because of representative democracy. The Congressman or Senator needs to get a better deal for his or her constituency, and that’s how they demonstrate they are doing their job. You’ve got all these special provisions in there and millions of people can benefit. We need to simplify this and that means reduction in some benefits. Most people do not itemize, so they are not getting the benefit of their deductions. I agree that we should eliminate a lot of those deductions and bring down the rates. That is the fairest way to approach the problem. One of the best things they can [IRS] do is to lock in the codes so they [businesses] understand what it is going to be like for the next 10 years. We need to think carefully about what is eliminated. We also need to provide incentives to businesses that are actually creating jobs in this country.
EOH: Is the IRS capable of moving quickly enough for the changes being talked about?
MWE: I would say they will do a good strong job of whatever is handed them. It’s not an agile bureaucracy, its cautious. There are over 100 thousand people there and they all want to do their job correctly and serve the American people. You can overload it, and Congress now with the health care legislation, if it doesn’t fund it, they will have real challenges getting that job done. If you simplify the law, it will be easier for people to understand what they are doing and easier for the IRS to enforce. Our research indicates that the compliance rate is 85%. If you clean up the law and simplify it, I think that 85% number will go up.
EOH: Do you think the IRS will ever get a handle on the underground economy?
MWE: Obviously they will never get it all, and that is a big challenge. The biggest non-compliance issue is the understatement of receipts by smaller businesses that are not recording their revenues. There are new laws that are going into effect where Credit Card reporting is going to help get more compliance. Obviously that is a tough issue. We need to make sure everybody understands that taxes need to be paid to support all those government programs and the attitudes need to change.
The last thing I’ll say is that I really would encourage the people who have not done their taxes yet to file an extension over the weekend and that will protect you and you won’t start to get into trouble with the service.