Everyone knows about paying taxes, especially this time of year. But few know about the collection end. I do. I’m a former Internal Revenue Service agent ready to share a few confessions.
I admit to having concern for my personal safety when sworn into office in 1960. The agent I replaced in Emporia, Kans., retired early, deaf and partially paralyzed from being beaten with a tire iron wielded by an angry, drunken taxpayer. I also knew of the dangerous heroics of a retired colleague, Mike Malone, who infiltrated the Al Capone gang in the 1930s. Mike gathered enough evidence to send the infamous Capone to prison, not for the many murders he perpetrated, but for tax evasion.
I never encountered any Mafia types, although our district office kept an eye on the business operations of Frank Costello, a notorious New York mobster who owned oil wells in Kansas. I did, however, face a couple of menacing weapons: a can of beer in one instance, a pitchfork in the other.
The beer was hurled at me as I left the home of an unhappy man. I felt only the spray as the missile missed my head by inches. With his check in hand and suffering no harm, I proceeded to my car.
The pitchfork was grasped by a stout Kansas farmer as I called on him behind his barn. His manner wasn’t threatening. His words were.
“What would they say if I stuck this in you?” he challenged.
Caught off guard, alone and defenseless, I replied, “I don’t think that’s a good idea.”
The man smiled and wrote a check.
I confess to thinking the top bracket of the time, 91 percent, was exorbitant. I soon discovered, however, that no one I came across paid at that rate, or even half of it. The reason was simple. As income rises, so does the temptation of dodges.
Although the 91 percent category didn’t seem to add much to Uncle Sam’s coffers, it made collections easier. Many times, I heard individuals at lower rates say, “I don’t mind paying my share when the Rockefellers are paying 91 percent.” They obviously didn’t know the real story, and I confess to never revealing it.
Tax brackets are always a hot political issue, but the truly important calculation is the “effective tax rate” — the percentage of taxable income paid to the government. I wasn’t surprised to learn during last fall’s presidential campaign that Mitt Romney’s effective rate for 2011 was only 14 percent. With an income of $13.7 million, Mr. Romney paid about the same percentage as a salaried couple with an income of $70,000.
I often found cases of that kind, where taxpayers with high incomes had effective rates at a much lower level. I confess to giving those returns extra scrutiny, but I seldom found anything contrary to the Internal Revenue Code.
The people I dealt with could be divided into two large categories: the naive and fearful on one side, and the informed and occasionally wily on the other. From the former, I sometimes heard a plaintive, “Am I going to jail?”
“No,” I replied.
Among the guileful, however, I sometimes wanted to say, “Yes.”
A case in point involved a CPA, no less, who filed his quarterly returns on time and in perfect form, but with no remittance. He ignored all inquiries from the IRS until I called on him every three months. He would greet me and ask, “How much do I owe this time?”
He understood the large penalty, 5 percent per month, was for late filing. A return sent on time without payment only accrued interest. He calculated that he could, in effect, borrow money cheaper from the government than from a bank.
Collecting from wage earners came easy compared to the self-employed. If an employee failed to respond to the several notices sent by the IRS, an agent could go to the employer, serve the appropriate document and receive the employee’s wages.
With the self-employed, however, I had to find a clear-title asset to expropriate, such as a bank account or automobile. As a result, 90 percent of delinquencies were owed by the self-employed.
Just how important are tax collections? During the several years of my service, the IRS calculated that we did not have a national debt, only unpaid taxes!
We are fortunate to live in the United States, in California, in San Luis Obispo County. We buy the essential public services and facilities of our civilization with taxes.
I confess to paying my share willingly.
Carroll McKibbin is a retired Cal Poly political science professor and a resident of San Luis Obispo.