Is Our Voluntary Tax System in Danger?

Posted on October 08, 2014

Our tax system here in the United States is based upon voluntary compliance.

Voluntary compliance depends on societal norms along with trust in the government and in its administration of the tax rules. The voluntary compliance rate in the United States has been stable for decades, staying in the low 80% range.

As recently as 2006, the IRS pegged the compliance rate at 83.1%. There is also the deterrence side of tax compliance which requires a strong IRS, higher audit rates and the assertion of penalties. However, the current audit rate for individuals is less than 1%, a figure that the IRS expects not to change for several years.

Recent controversy surrounding the IRS, such as accusations that the agency targeted conservative groups for political reasons and other factors, have eroded the public’s trust in a fair tax system.

If the public’s trust in the tax system continues to erode, voluntary tax compliance rates in the United States could plummet. Further, budget cuts have cause the IRS to be unable to provide the same level of services it has provided in the past, further eroding public confidence in the IRS. What is your level of confidence in the IRS?