Making Government Work

The Surprising Way That States Are Getting Residents to Pay Their Taxes

July 1, 2015
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The Surprising Way That States Are Getting Residents to Pay Their Taxes
Thirteen U.S. states are offering, or are considering, amnesty to delinquent taxpayers. Scott Olson/Getty Images
This helps both governments and individuals take care of their financial responsibilities.

They say there’s two things that are certain in this life: death and taxes. Only this year, that’s not true in 13 states. No, a quarter of America hasn’t discovered the secret to immortality. Rather, this group has offered (or is considering) amnesty for delinquent taxpayers to file their unpaid back taxes.

It may seem contradictory, but these states are demonstrating that the best way to collect taxes is to sometimes forgive those who don’t pay. Tax amnesty sacrifices some of the penalties and interest that an evader technically owes, in exchange for receipt of the outstanding balance. While state governments do forgo some funds, they gain an injection of cash that can help close budget gaps and get citizens back in the system.

“I think it’s just kind of an easy way of plugging a budget hole. You get some revenue out of it, and if you don’t do it too often, it’s pretty effective,” Mandy Rafool, a tax expert at the National Conference of State Legislatures, tells The Pew Charitable Trusts’ Stateline blog. “It doesn’t generate much money,” but “it’s pretty painless,” she adds.

Louisiana decided to offer a break to scofflaws when the state’s revenue wasn’t keeping up with expenditures. If the Bayou State didn’t pull in $100 million, cuts would have been made to healthcare and education. Luckily, it collected more than half a billion dollars — $551 million — most of which came from a handful of big evaders. In 2013, two participants coughed up $175 million to the state, and another 34 late-filers each forked over more than $1 million. “This is an opportunity to come clean,” says Jarrod Coniglio, deputy secretary of Louisiana’s Department of Revenue, which opened a one-month window each of the past two years to catch up on payments. A third and final phase will roll out later this year, though it’ll be far less generous than in preceding years.

Experts caution, however, that tax amnesty programs can’t become too routine. “If you do one every 20 years, you can clean up some accounts,” John Kennedy, former Louisiana Revenue Director who’s now the state treasurer, tells Governing. “But we’re doing it too often. It seems like they do one every Thursday now. It’s a disincentive to people paying their taxes.”

Amnesty supporters agree the programs should seem to be announced at random; otherwise, some will expect to be let off the hook in the future. That’s why Indiana, which estimates it will haul up to $159 million in back taxes, has prohibited those who took advantage of amnesty in 2005 from participating in this year’s event.

Most people who skip paying taxes aren’t out to game the system, argues Michael Fried, a tax lawyer in Bethesda, Md. “They do it because of real reasons — the economy, their job status, the cost of raising a family,” he tells Stateline. “People just fall behind and a solution pops up.”
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