Last month, the Treasury Inspector General for Tax Administration released a report titled: Affordable Care Act: The Number of Taxpayers Filing Tanning Excise Tax Returns Is Lower Than Expected. Here’s what the report says about the results of the “tan tax” so far:
The number of taxpayers filing tanning services excise tax returns is much lower than expected. According to IRS documents, in April 2010, the Indoor Tanning Association estimated that 25,000 businesses were providing indoor tanning services. However, the actual number of businesses liable for the tax has been difficult to determine with any degree of accuracy. Identifying these taxpayers has been one of the more challenging tasks the IRS has faced when implementing this provision. For the first three applicable quarters, the number of Federal excise tax forms reporting tanning taxes has averaged approximately 10,300.
And here are figures for tax revenues actually collected, according to that report:
Quarter ended September 30, 2010: $17.8 million
Quarter ended December 31, 2010: $15.7 million
Quarter ended March 31, 2011: $20.9 million
The Congressional Joint Committee on Taxation estimated that the “tan tax” would produce revenue of $200 million for Fiscal Year 2011. It looks like the IRS is going to come up a little short of that prediction (like more than 50% short).
But that’s just a drop in the bucket of the $438 billion in new taxes, fees and penalties that are reportedly expected to be generated under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act that were signed into law in March 2010. That $100 million or so in revenue will never be missed, right?
On the other hand, if the overall revenue projection is as far off as the “tan tax” projection, that projected $438 billion of total revenue will end up being more in the neighborhood of $200 billion. Even in government bookkeeping, a revenue shortfall of more than $200 billion seems significant. And it seems that a program with that kind of a revenue shortfall might have a problem.
I’m not commenting on the political or societal merits of the Patient Protection and Affordable Care Act, honest. I’m just pointing out that in the world of federal government revenues and expenditures, the numbers are whatever the government prognosticators say they are, never mind the reality. It reminds me of what Humpty Dumpty said to Alice: “When I use a word…it means just what I choose it to mean – neither more nor less.”
So, what does all this mean for the future of our tax system? It means that no matter what our elected officials say, the disconnect between the revenue demands of government and the design of the tax structures that are supposed to collect that revenue is getting worse every time they, our elected officials, tinker with the tax structures. That tinkering makes the tax system more complex every single time, while serving mostly to benefit politically favored constituencies and punish disfavored ones.
Our elected officials give lip service to the realities of matching revenue demands with tax structures, but it’s getting harder and harder to believe that they are even honest, let alone serious, about those concerns. Why should they be, if there aren’t any consequences when a tax instituted to support a specific program brings in only half the revenue that it was supposed to produce?
WHILE WE’RE ON THE SUBJECT OF INEFFECTIVE ADMINISTRATION OF OUR RUINOUSLY COMPLEX TAX SYSTEM…
Here are some highlights from another recent release from the Treasury Inspector General for Tax Administration (“TIGTA”), this time about income tax credits for education expenses:
Billions of Dollars in Education Credits Appear to Be Erroneous
As of May 28, 2010, TIGTA identified 2.1 million taxpayers receiving $3.2 billion in education credits that appear to be erroneous, and at least 1.1 million (52 percent) had tax returns prepared by a paid tax return preparer. Specifically:
• 1.7 million taxpayers received $2.6 billion in education credits for students for whom there was no supporting documentation in IRS files that they attended an educational institution.
• 370,924 individuals claimed as students who were not eligible because they did not attend the required amount of time and/or were postgraduate students, resulting in an estimated $550 million in erroneous education credits.
• 63,713 taxpayers erroneously received $88.4 million in education credits for students claimed as a dependent or spouse on another taxpayer’s tax return.
• 250 prisoners erroneously received $255,879 in education credits.
Once again, we see that the federal income tax is apparently too complex to be administered correctly (see my July, 2010 Report about the first-time home buyer tax credit for another example). That alone should be sufficient impetus for simplification, never mind the economic damage being done by excessive tax code complexity (see my May, 2011 Report for a discussion of this subject).
QUOTE OF THE MONTH
“Sometime I’ve believed as many as six impossible things before breakfast.”
Alice in Wonderland