THE BURNED OVER DISTRICT

Strange Priorities

In coming weeks, the Internal Revenue Service plans to start siccing private debt collectors on people with up to $25,000 in unpaid income taxes — and laying off nearly half of the auditors who examine estate tax returns of the wealthiest taxpayers.

Concern for appearances should, on its own, impel the agency to scuttle its plans. A perception of unfairness is bad for the tax system, and this pair of policies virtually screams “only little people pay taxes.” But appearances are not the only reason to rethink these initiatives.

Private tax collection costs more than it would cost to give the I.R.S. the resources to pursue the debts. Federal budgeting oddities only make it seem less costly. Private collection also raises serious concerns about fraud and privacy. Mark Everson, the I.R.S. commissioner, should fight hard for the resources the agency needs to do the job it clearly does best. Instead, he supports private collection, allowing the administration and Congress to indulge the fiction that they are saving money.

The rationale for laying off estate tax auditors is also unconvincing. To allay suspicions the cutbacks are a way to shield wealthy heirs from taxes, two Democrats on the House Ways and Means Committee, John Lewis of Georgia and Earl Pomeroy of North Dakota, sent a letter recently to Mr. Everson, asking for facts and figures to justify the job cuts.

Mr. Everson responded with a “trust me” letter. He said that the I.R.S. could enforce the law with a smaller staff because the number of estate tax returns was expected to decline. The filing threshold for estates is set to rise from $2 million today to $3.5 million in 2009, resulting in fewer filings for relatively small estates. However, the figures he provided indicate the cutbacks will reduce audit coverage, in part because significant estate auditing resources are already focused on large fortunes that will be taxable even after the law is fully in effect.

Mr. Everson also said it would be better to do more auditing of big-dollar income tax returns. But he did not supply the data that Congress and the public need to vet that assertion. What is required is the number of hours auditors spend on various types of audits and the additional tax they collect for their efforts. If Mr. Everson cares about public confidence in his decisions and in the tax system itself, he should provide the information without delay.

// posted by montag @ 10:56 PM