Artful Dodgers

The spread of tax cheating

Among citizens of major industrial nations, Americans have long been among the most honor bright in paying their taxes. But hammering inflation and high levies have weakened their sense of morality. More and more, otherwise honest Americans are following the lead of underworld elements and dodging their tax obligations by exchanging goods and services for under-the-table payments of cash and barter.

Last week the Internal Revenue Service disclosed the results of its first effort to gauge how much the Government is losing because of this growing underground economy. The estimate: in 1976, the last year for which full statistics are available, the Government failed to collect income taxes of some $13 billion to $17 billion on legal but unreported transactions worth between $75 billion and $100 billion.

The IRS arrived at its findings, which it admits are only "best estimates," by closely analyzing and comparing a sampling of returns and then making broad projections. The worst offenders, the IRS says, are self-employed workers, ranging from lawyers to street peddlers, who failed to report an estimated 40% of their income, or $39.5 billion. Employees of independent contractors -- electricians, carpenters and the like -- seem to be the most artful dodgers. Charged IRS Chief Jerome Kurtz: "At least 47% reported absolutely none of their compensation."

Even so, the IRS seems reluctant to take strong action against the cheating. Americans are already complaining enough about the heavy burden of Government bureaucracy. Said one Treasury official: "There is no way you can win on this subject. It always looks like we are going after the baby-sitters to make them pay taxes." However, the IRS is trying to figure out ways of subjecting tips received by waiters and waitresses to withholding (they are supposed to be voluntarily reported). A more jarring proposal would require businesses to keep back 10% of the money owed on contracts and send it to the Government as taxes on the outsiders' income.

That is not sufficient for New York Congressman Benjamin Rosenthal, chairman of a Government operations subcommittee, who believes the IRS report underestimated the size of the underground economy by $100 billion to $200 billion. He wants tougher auditing of tax returns, believing that only "fear" will force more people to declare their full income. At present, the IRS audits only 1.8 million individual returns a year, or about 2% of the total. Says the angry Congressman: "The people paying their taxes are being forced to subsidize the rest."

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