Coloradans who have neglected to pay their state taxes may have an opportunity to come clean this fall thanks to a bill that would waive penalties for those who pay in full between Oct. 1 and Nov. 15. The measure now sits on the governors desk.
Such amnesty measures are not uncommon. They work by removing an impediment to the action they are designed to promote. Libraries, for example, recover long-overdue books by offering to forgive fines. In that case, theres no real disadvantage. The odds of regaining the book and collecting the fine are often very small, because the costs of legal recovery can quickly exceed the value of the book.
The issue of tax amnesty is a little more complex, because the amounts owed arent all in the library-fine range. Lawmakers believe the state might recover $10 million to $15 million this year. They hope to add most of it back into K-12 funding. Its not a lot in the face of $227 million in cuts, but every little bit helps. In a similar amnesty in 2003, legislators expected $5 million to $10 million and got $22 million.
How much interest would need to be forgiven is difficult to analyze, since it depends greatly on who pays up. People whose taxes are long overdue logically would be more motivated, because their interest bill has been mounting. If the interest is less than the cost of collecting, the amnesty makes sense, at least as a revenue measure.
It doesnt make quite as much sense to people who have followed the rules and paid their own back taxes with interest, nor does it make sense to all of those who paid on time when they now realize they could have had a tax-free government loan. Tax amnesty is popular with politicians because it appears to combine fiscal responsibility with compassion, bringing in the money taxpayers should have paid in the first place, while relieving the interest burden on individuals and businesses that are already struggling. Fine except what about those who could have paid but just didnt?
If tax scofflaws dont believe the state is going to pursue them using all of the legal means available including stiff penalties and interest they dont have much reason to pay even when the interest is forgiven. If, on the other hand, someone from the state Department of Revenue has already assured them that they havent escaped notice and wont escape paying, the taxpayer has a very good reason to write a check quickly, but the state has less reason to forgive interest.
According to the Associated Press, tax amnesty is one tool governments use when they have run out of other ways to collect revenue. It works, but the idea is a little unnerving in the way it rewards undesirable behavior.
Go ahead, do it and then devise a better way to levy taxes, collect payment and budget for state expenses. Colorado should be offering amnesty to those who most deserve it, not in a game of chicken involving state revenue.
