Tax expert David Cay Johnston is following a story that nobody else seems to care about: "Last week, we pointed to a piece of news that we have yet to read or hear from most major news organizations: The federal budget deficit is going to take a hit, because Congress included the government’s fundraising arm, the Internal Revenue Service, in the sequester."
Johnston's latest piece, "Honey, I shrank the IRS," appears in the Columbia Journalism Review. For me, it brought up once again the real divide in American incomes: income that's reported by employers to the IRS, and income that's self-reported. Here's the key paragraph:
The 151 million Americans who have paycheck jobs see their federal income and payroll taxes deducted before they are paid, in a largely automated system that verifies what individuals report on their tax returns with data from employers. Meanwhile, business owners, freelancers, landlords, and some investors all self-report—with little to no verification of income.
What happens when there's "little or no verification of income" should come as no surprise: unreported income is far and away the leading cause of the so-called "tax gap," the roughly $400 billion-a-year difference between taxes that should be paid and what's actually paid.
The solution, of course, is stunningly obvious. Income that's currently self-reported should, by stages, be reported to the IRS and become just as verifiable as wages.