Posted on: Thursday, January 15, 2004
ISLAND VOICES
Hundreds of millions were lost to state
By Rick Damerville
Rick R. Damerville is a state deputy attorney general.
Hawai'i's government has been struggling with a loss of auditor and revenue collections positions and only one criminal tax investigator.
As your Jan. 12 article "State tax-return audits drop" implies, there is a state and national crisis in the enforcement of our tax laws. I would like to say that the situation did not happen on Kurt Kawafuchi's watch. He is an outstanding tax attorney and the best possible tax director that Gov. Lingle could have chosen.
Between 1995 and 2002, our state Department of Taxation lost 11 auditor positions and 13 revenue collection positions because those positions happened to be vacant (low wages, hiring freezes) when the Legislature decided it could balance the budget by cutting state positions, including those that actually generate revenues.
As a result, the state of Hawai'i lost hundreds of millions of dollars in tax revenues as enforcement efforts inevitably declined.
Recently, the IRS announced that it was laying off more than 2,000 clerical employees in order to beef up its tax enforcement program. While that announcement was innocuous on the surface, it is recognition of a crisis. I would not, however, recommend the solution chosen, as it is comparable to selling the tires off the car in order to buy gasoline to run the car. You will be able to turn on the motor, but it will not take you very far.
There are more than 10 million criminally culpable tax return nonfilers in this country. Last year, fewer than 400 individuals were prosecuted by the federal government for that offense. You have a better chance of winning the lottery than you do of being prosecuted for willfully failing to file your federal tax return. That is disgraceful.
I understand that federal criminal investigators themselves are extremely frustrated by the bureaucratic minefield that they must walk through before they can get approval for a criminal prosecution. That minefield was the understandable overreaction to President Nixon's misdeeds in the 1970s. Still, less than 400 prosecutions of nonfilers annually when there are more than 2,900 criminal investigators at the federal level is an unacceptable level of enforcement effort.
The state of Hawai'i has been struggling with a loss of auditor and revenue collections positions and only one criminal tax investigator. Think about it. We have 22 criminal investigators with the Department of Human Services who are responsible for combating fraud among a caseload of approximately 25,000 welfare recipients, and they have all the cases they could possibly handle. We have one criminal tax investigator who is responsible for combating fraud by the rest of us. He likes to say that he is also responsible for the welfare recipients because we know that some of them commit tax fraud in addition to welfare fraud.
Give us more tax crime investigators, and tax compliance will go up and there will be money to improve our schools and roads. Do it now. Do not wait.
Half of our gross tax revenues come from the general excise tax. You do not need a CPA to investigate excise tax crimes. Either a taxpayer has gross income subject to the tax or not. Either the taxpayer filed his return or not. Investigation of those offenses does not involve subtle tax issues or involved schemes to hide gross income.
Enforcement increases tax revenues. After the implementation of the cigarette stamp and announcement that the attorney general would enforce the law, cigarette tax revenues went from $20 million to more than $40 million in one year.
Enforcement does not mean that we have to throw everyone in jail. What it should mean is that nonfilers and tax protesters who take frivolous positions such as wages are not taxable or, "I do not have to pay taxes because Hawai'i is not a state," or "I do not have to pay taxes because the Internal Revenue Code says 'United States' and I do not live in the 'United States,' I live in the United States of America," should be promptly notified that their case has been turned over to a criminal investigator. Take your argument before a criminal court judge and a jury of your peers. As a prosecutor, I like my chances.
In Hawai'i, if you want tax revenues to keep pace with our growing economy, the solution is easy. Reinstate the lost state positions and set salaries that will encourage employees to stay in those positions. Hire six more criminal investigators and let the public know that we mean business. Call them the magnificent seven. Hire them as civil servants, as temporary employees, as emergency hires, or volunteers. I do not care. But do something. Our children deserve better schools.
Tax law noncompliance is the reason we do not have the revenue to improve our schools. We should all be ashamed.
