“Taxes are what we pay for a civilized society.” Supreme Court Justice Oliver Wendell Holmes, Jr., and others.
How true! One can debate the level of taxation, but all would have to agree our country, our state, our communities could not provide the quality of life that we enjoy without people paying taxes for services that would otherwise not exist. Our road system, clean water, sewage and waste management systems, education opportunities for all regardless of income, police, fire departments, incarceration facilities for criminals, mental health and health treatment services for the most-needy, parks, and much more, are what our tax dollars support. Sadly, not all individuals and businesses pay their fair share to ensure the essential services are available and adequate. So how do we get more of those benefitting from government services in Arizona to contribute to their support?
Having a vigorous auditing and tax compliance program is essential to ensure as many taxpayers as possible are paying their fair share to support necessary public safety, education, health and other state government services. This is obvious to me as someone who spent nearly 20 years in state tax administration, over 9 of which was as Director of the Arizona Department of Revenue. Every year I served as director, auditors, licensing enforcement and collectors brought in over $10 for every dollar spent, on average, in added taxes not properly and timely paid. If voluntary compliance was extremely high, the return on investing in compliance activities would not have been so great. It is also evident to experienced tax administrators who implemented tax amnesty programs, as Arizona was the first to do in 1982. The result was long lines at the State Capitol of individuals and business owners that feared being caught in a newly expanded enforcement effort for failure to file and/or pay prior year taxes. In addition to this understanding gained from first-hand experience, the IRS has conducted five research studies between 1985 and 2006, all of which showed voluntary compliance with federal tax laws was less than 85%. There is no reason to believe Arizona has a higher voluntary compliance rate. Based on this information, enough money is annually being lost to adequately address many unfunded or underfunded state needs. If we assume the 15%+ found in federal studies, as much as $1.5 billion dollars is not being voluntarily paid each year to the state, and that does not figure in local sales taxes.
Tax evasion hurts everybody. The lack of adequate education funding continues to be a major concern of Arizona citizens. Substantial cuts to other state programs have also taken place that don’t receive as much attention, but threaten the quality of life for many Arizonans in the future. We are blessed to have generally good highways, but we also have concerns about the ability to maintain our roads and bridges. Higher college tuition is making post-secondary education unaffordable for many, unless they go deeply into debt. The safety net for children in poverty has been decimated. These are but a few examples of what happens when everyone doesn’t pay their fair share of taxes, and what happens when the tax enforcement program is not as vigorous as it needs to be. It isn’t just the added dollars that enforcement brings, it is also telling all taxpayers who are paying their fair share that we want everyone benefitting from Arizona services to also contribute to our quality of life now and for the future.
The Arizona Center for Economic Progress
3030 N. 3rd St., Suite 650
Phoenix, AZ 85012