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Wednesday, January 12, 2005

Tax Amnesty

Here's an interesting topic for discussion. Should states offer amnesty for tax dodgers, allowing them to pay what they owe without interest or penalties?

The Legislative Services Agency estimates that Indiana could collect between $20 million and $269 million through the grace period. If the state collected the same percentage of taxes that states with similar programs average, Indiana would bring in a little more than $103 million.

As a law-abiding taxpayer, it rankles me that someone would get away with cheating on their taxes like this. Still, if the alternative is not getting this $100 million, we're in better shape offering this amnesty.

We can analyze a situation like this with a cost/benefit analysis. How much of the owed taxes would be recovered under different options, such as amnesty or increased enforcement? Chances are, the amnesty is going to be the better deal.

Amnesty shouldn't be a common thing, since like recurring sales, we don't want someone who skipped a tax bill to just wait for amnesty. Most should be willing to own up to their mistake and pay the penalty.

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