By M.D. Kittle | Wisconsin Reporter
MADISON — Gov. Scott Walker may have built a reputation as an unrepentant budget cutter, but he’s on a hiring binge in his latest budget proposal — especially when it comes to tax collectors.
Overall, Walker recommends adding about 710 full-time equivalent positions to state government through a variety of revenue sources, but he would eliminate 41 positions under state appropriations, and another 322 “that should not continue into the next biennium,” according to the budget summary.
While many agencies would see static workforce rolls, the state Department of Revenue would add 67 full-time equivalent positions, all focusing on increased tax enforcement and lottery security efforts.
The budget targets fraud and tax cheats in particular. Recommendations include:
- 13 full-time equivalent positions to combat fraudulent income tax returns and other tax credit claims.
- 15 positions for the “intensive collection effort” program.
- 33 positions for other tax enforcement efforts.
- Six positions in lottery security.
“These additional positions will reduce the department’s federal audit report backlog, permit more time assessments of unpaid Wisconsin taxes and increase revenue by $35.8 million over the biennium,” the budget document states.
Stephanie Marquis, spokeswoman for the state Department of Administration, an agency that faces some fairly big cuts, said strengthening Revenue’s enforcement arm is expected to have a significant return on investment.
For instance, fraud-fighting initiatives are projected to increase tax collections by $28 million over the biennium, and reduce improper payments of homestead and earned income tax credits by $6 million.
The cost to taxpayers: About $7.4 million to run the program and hire staff.
“DOR’s positions are targeted to combat fraud and improve collection efficiencies, while producing a high return on investment for hard-working taxpayers,” said Revenue spokeswoman Laurel Patrick in an email to Wisconsin Reporter. “The proposals are made with the taxpayer in mind. These positions are an investment to leverage technology at DOR, and will provide approximately $75 million more for taxpayers in collections.”
The IRS estimates that 23 percent to 28 percent of earned income credit claims are either erroneous or fraudulent, Patrick said.
In fiscal year 2012, the Department of Revenue was able to prevent paying $9.3 million for false EITC claims and nearly $15 million in false homestead credits claimed, the agency noted.
The year before, the Department stopped payments of more than $12.2 million for false claims, according to the agency. That represents about 10 percent of the $124 million paid out to some 268,000 EITC claims that year. Wisconsin is the first state in a pilot program that matches federal and state EITC records and information to better verify eligibility. The Revenue Department estimates the initiative could save the state at least $2.4 million per year.
The U.S. Treasury Department estimates erroneous EITC payments cost the federal government — the U.S. taxpayer — as much as $13 billion per year.
“… (W)e must continue to monitor for those people who try to game the system for their benefit,” said Revenue Department Secretary Richard Chandler in a statement.
The state that lost an estimated $1.2 billion in expected tax revenue in fiscal year 2009, according to “Wisconsin’s Billion-Dollar Tax Gap: How Uncollected Taxes Can Help Fill the State’s Budget Hole,” a 2010 study by the Institute for Wisconsin’s Future, a public policy research and community outreach organization. The gap, making up about 10 percent of state tax collections, is defined as the difference between the amount of money taxpayers should pay and the amount that is actually paid voluntarily and on time.
The report estimated the gross tax gap — before audit and enforcement activity — at $1.6 billion, including:
- $746 million in individual income tax.
- $536 million in sales tax.
- $113 million in corporate income tax.
- $44 million in cigarette tax.
- $164 million underpayment of taxes.
The Department of Revenue recovered $401 million in 2010, leaving the net tax gap of $1.2 billion, the report found.
A University of Wisconsin-Madison study found the U.S. tax gap, just a few years ago, was approaching $500 billion.
“… (E)mploying the most recent data we find that 18 (percent)-19 (percent) of total reportable income is not properly reported to the IRS,” notes the study, “America’s Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S.”
A newly released report by the liberal Wisconsin Public Interest Research Group estimates Wisconsin lost $814 million due to “offshore tax dodging” in 2012. Nationally, losses are pegged at $150 billion.
“Tax dodging is not a victimless offense. When corporations skirt taxes, the public is stuck with the tab. And since offshore tax dodgers avoid both state and federal taxes, they hurt everyday taxpayers twice,” said Joe Rasmussen of WISPIRG. “That money should be used to benefit the public.”
That money could be used to lower the tax burden on the people who are paying their fair share.
The bottom line, the Walker administration is looking to get some of the state’s missing tax money back.
Contact M.D. Kittle at [email protected]