The AFT believes that in order to have a strong democracy that protects the common good, we must fight for the resources each community needs. Every year, states fail to collect billions in revenues because of tax evasion and inefficient tax systems. These “tax gaps” account for a sizable share of state budget deficits—billions of dollars in some states—and widespread noncompliance sends a negative message that can undermine the legitimacy of the entire tax system. States can take a number of actions to narrow tax gaps.
Maintain and enhance enforcement
Minnesota has found that every dollar invested in improving collection efforts led to $7 in new revenue. Strategies to maximize collection include better use of data analysis, improved tracking of tax expenditures and nonfilers, increased sanctions and targeting of serially delinquent filers.
As noted, misclassification of employees as independent contractors is a widespread problem. It is also a form of tax avoidance, and addressing it will save the state funds. Targeted audits in California over two years led to the recovery of $170 million in taxes, fees and fines.
Collect fees on real estate transactions
At the start of the housing boom, a consortium of bankers created the Mortgage Electronic Registry System to keep track of which bank owned which mortgage. These banks claimed that when they sold mortgages among themselves, no fee needed to be paid to the local government agencies that traditionally keep track of title. Since then, a number of counties have initiated legal action against the mortgage bankers to recover fees and penalties. States and local governments should be encouraged to take similar action.
Reform corporate subsidies
States enact major finance programs that are ostensibly designed to support job creation by companies in the private sector. Given how many of our current problems are the result of a lack of good jobs, it is vital for these programs to be effective. If they are not effective, and simply pad corporate bottom lines, they should be discontinued and the funds put to better purposes. States should be strengthening penalties, providing more active review of programs and better disclosing information about enforcement and regulation.