Tax administration entails the application of tax laws and regulations. This component of government is manifested on three general levels — national, state and municipal — in most national systems. The area of tax administration has evolved considerably over the millennia as commerce has developed. Along with this development have arisen a number of issues. In addition to providing an overview of the evolution of taxation and the management thereof, this paper will examine such issues in two general thematic areas.
Keywords: Adjusted Gross Income (AGI); Earned Income; Exemption; Internal Revenue Service (IRS); Internet Trade Freedom Act (IFTA); Tax Amnesty; Tax Code; Tax Evasion; Uniform Sales Tax; Use Tax; Value Added Tax
President Lyndon Johnson once commented on the public's popular opinion of taxes. "In 1790," he said, "the nation which had fought a revolution against taxation without representation discovered that some of its citizens weren't much happier about taxation with representation" (www.ThinkExist.com). Indeed, most people find much to disdain about taxes, particularly since so much of life — owning a home and/or a car, shopping or dining out and, of course, worker salaries — is subject to taxation from local, regional or national-level government.
Still, most people will argue that taxes are necessary for the maintenance of critical government programs, such as road repairs, school operations, public assistance programs and national defense. Naturally, much political debate has ensued over the extent and degrees to which taxes should be levied in a given political system. Battles in this arena are constantly fought in legislative circles, brought to an end by the passage of tax legislation into law. Once such legislation becomes law, however, the politics is separated while the new policy is implemented and enforced.
Tax administration entails the application of tax laws and regulations. This component of government is manifest on three general levels — national, state and municipal — in a given national system. This paper will provide an illustration of how tax administration has evolved as well as the issues that coincide with that development and application in the 21st century economy.
Taxation Through History
Taxation is a practice that has been conducted for millennia. In ancient Egypt, pharaohs sent "scribes" to collect taxes on cooking oil, ensuring that the pharoahs' subjects were not exceeding recommended amounts and seeking punishment for those who skirted the laws by using other cooking sources. In early Greece, taxes were imposed universally on citizens to help fund war efforts — when a war was won, the tax would be refunded to the citizens using the spoils of the conflict.
The Roman emperor Caesar Augustus is widely viewed as one of the earliest and most effective tax strategists, able not only to impose a complex system of taxation for the diverse Roman citizenry but an administrative network by which the tax would be collected. The Roman Empire's tax administration system, which would reach across the Empire's domain as far as what are now the British Isles, would become the inspiration for European taxation systems.
As the British Empire grew in its own right, its own territories would become subject to the taxes of the crown — this "taxation without representation" eventually contributed heavily to the American Revolution. After the British were repelled at the end of the Revolution, American leaders implemented taxes to both help the fledgling country pay its war debts and build its government institutions. The American model of taxation would include the first-of-its-kind income tax, implemented during the Civil War era ("A History," 2009).
The examples of ancient Egypt, Greece, Rome, Western Europe and the United States underscore two important points about taxation. First, the need of societies to generate revenues from the citizenry which will be used to fund government endeavors and programs. Second, as the myriad of civilizations has evolved and diversified internally over the last several millennia, so too has the manner by which taxation is administered. Concurrently, the issues surrounding tax administration have become equally diverse during this development.
A Confrontational Relationship
It may be said that the imposition of taxes occasionally creates an adversarial relationship between the government and the private citizens. In the United States, few residents anticipate April 15, for that date is the deadline for reporting federal and state income tax — an often arduous and complex task, particularly for those who are not familiar with accounting and cannot afford the services of a certified public accountant (CPA). Once taxes are filed, many people dread the possibility of an audit, which is usually initiated when discrepancies in personal income tax returns are detected.
In light of the consumer's ingrained desire to protect as much of his or her income as possible, the goal is to minimize one's adjusted gross income (AGI), which is an assessment of a taxpayer's liability based on the aggregate of all income sources, less expenses. By diverting some of their income into tax-free retirement accounts and carefully calculating all business expenses, taxpayers are able to avoid higher tax liability. Unfortunately, minimizing tax liability is often perceived as a daunting and expensive (especially when one must call upon the services of a CPA) task that may exacerbate the often negative attitudes the public has toward government tax administration.
Efforts to Improve Relations
To the end of alleviating the stress that creates a confrontational relationship between taxpayers and the government, many political systems are implementing reforms and improving services. Governments that create opportunities for taxpayers to file returns online using user-friendly software (including ProSystem fx Tax, Lacerte, UltraTax CS, TaxACT, and TurboTax) for example, may see more on-time filings with fewer calls for audits because of the relative simplicity and guiding hand of the software. Consumer stress may also be ameliorated by the quick turnaround time within which refunds checks are received.
In some cases, government tax agencies are going even farther to reach out to customers. In the United States and Norway, for example, tax agencies are not only utilizing modernized information technologies — they are training employees to change their attitudes about taxpayers. Rather than looking at taxpayers as subjects to the tax administration system, employees are learning to treat them as customers, worthy of respect and courtesy (Aberbach & Christensen, 2005). Results of an American Customer Service Index (ACSI) survey published in 2013, however, showed that IRS's website has "consistently ranked below the average" in customer satisfaction compared to websites from other federal agencies and many sectors of the private economy, including banks, Internet retailers, and Internet brokerage firms (GAO Reports, 2013). Despite such shortcomings, however, both the U.S. and Norwegian governments anticipate that adopting consumer-oriented attitudes will help break down barriers between tax agencies and the public.
In times of economic hardship and declining tax revenues, however, that relationship may return to an adversarial and even politically polarizing status. During the tail end of the global recession that began in 2007, for example, President Barack Obama and the Democrat-controlled House and Senate introduced sweeping legislation designed to reform the nation's health care system. (The Patient Protection and Affordable Care Act was subsequently enacted in 2010.) With the federal deficit skyrocketing, the legislation's advocates looked for other revenue sources. One such source was a proposed 40 percent tax on high-cost medical plans (Reuters, 2009). This proposal, considered an important piece of that legislation, immediately met with strong opposition from within Congress and from the public, who saw the measure as an unnecessary burden placed on the current health care system.
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