Tax Cheats Burden Honest Taxpayers
Stealing fuel from the economic engine...
[by Jon Coupal] 12/20/05

A newly released study from the Milken Institute estimates that employers for 15% of workers in the County of Los Angeles are not paying payroll taxes. According to the study, titled the "Los Angeles Economy Project," these violators have failed to pay their fair share of taxes to city, state and federal coffers to the tune of $2 billion annually.

Given both its size and high percentage of illegal immigrants, it is a safe bet that Los Angeles contains the lion's share of California's underground economy. Nonetheless, had the study included the rest of the state, it is likely that such an extrapolation would reveal billions more being denied to government coffers.

Law-abiding taxpayers are hurt by this endemic culture of non-compliance in a number of ways. First, those who pay their taxes are effectively subsidizing those who do not. And to add insult to injury, many of the workers for whom payroll taxes have not been paid are disproportionately reliant on the very social safety net programs funded by payroll taxes. Failure by employers to pay taxes for nearly 700,000 workers denies these programs $1.1 billion.

The authors of the study conclude that if this growing trend of nonpayment of payroll taxes continues, it could very well contribute to a downward spiral in the local economy. As much as the rest of Californians, particularly those in the northern half, have a marked dislike and distrust of the City of Angels, there is no denying that it is the engine of the state's economy.

Greater compliance with payroll tax laws would help protect jobs for individuals who are here legally because such compliance would provide a disincentive for illegal employment. And it goes further than that. It is not a stretch to correlate immigration policy with national security interests in a post 9-11 world.

Lest anyone think that taxpayer advocates are now shilling for those in government who are perpetually grabbing for more revenue, let's be clear about the extent of the problem. We are not talking about payroll taxes for teenage babysitters. The scope of the problem with adult workers -- who use our public hospitals, schools and public safety services -- is huge. And, as noted above, the cost to backfill these services will be borne by ordinary taxpayers who believe that paying taxes, while unpleasant, is an obligation of citizenship.

The call for greater compliance should, in no way, be construed as a ringing endorsement of government. To the contrary; we know that government at all levels continues to have an unacceptable level of corruption, waste and inefficiency. Far too few of our elected officials and bureaucrats care about taxpayers except to the extent that they provide the funding to sustain their personal fiefdoms, or extend their pay and benefits.

More than that, many government entities in California themselves violate the law with impunity. Cities, counties and special districts knowingly violate taxpayer enacted laws like Proposition 13 and Proposition 218 (the Right to Vote on Taxes Act) and simply wait until they are sued by citizens who may have the resources to enforce the law.

It is not just local governments who are counted among the ranks of scofflaws. The state of California hasn't had a balanced budget for years, notwithstanding the clear dictates of the California Constitution.

But taxpayers must studiously reject the temptation to violate tax laws simply because government itself is a violator or otherwise uses its powers to harass and torment its citizens. Taxpayer advocates, such as the Howard Jarvis Taxpayers Association, must remain on the legal and moral high ground. Damage is inflicted on the taxpayer rights movement whenever those evading taxes for personal gain hide behind the label "tax protester."

There are legal remedies to advance the cause of taxpayers: The political arena (including the rights of referendum, initiative and recall), the courts (where groups like the Howard Jarvis Taxpayers Association continue to score numerous victories) and, of course, the continuing efforts to educate the citizenry as to the fiscal state of of our state. These efforts have gone on for decades and should continue.

For some, a legal response to California's hostile tax and regulatory climate has been to move out of the state. Indeed, many of the state's best and brightest entrepreneurs have "voted with their feet" and left for Nevada, Texas and Florida where taxpayers are actually treated with respect. But if we are to reverse this trend, protect law-abiding taxpayers and restore public confidence in our system, we must crack down on tax cheats in both the public and private sectors. CRO

copyright 2005 Howard Jarvis Taxpayers association

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