Taxpayers: Come Home. All Is Forgiven

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A New York state ad campaign encourages errant taxpayers to meet their obligations

What are state legislatures to do, afraid to raise taxes and reluctant to cut programs but facing mounting budget deficits and getting no help from the feds? One half-a-loaf answer: Get what you can from those who haven't been giving what they should. More and more states (as well as libraries and police departments) are offering amnesty programs in order to collect at least something from taxpayers who haven't paid their fair share. In the last three months, New York, Massachusetts, South Carolina, Virginia, Missouri and Kentucky have offered their recalcitrant taxpayers some kind of break, and several more states are considering similar measures. Pay now, the message goes, and we'll just pretend you paid us on time.

That's an awfully appealing idea to the many would-be taxpayers paralyzed into inaction by the fear of fines and other penalties amassed since they last filed. Consider Kentucky's taxpayers, who sent a whopping $80 million to the capital during a 90-day respite, roughly quadruple the amount legislators had hoped for. South Carolina collected $66 million in two months — a haul that staved off all-but inevitable budget cuts. Occasionally, the projected income from a tax amnesty period even helps elected officials keep critical campaign promises: Kansas Gov. Kathleen Sebelius is counting on back taxes to ensure no cuts will be made to the state's education programs. It all adds up to what Governing magazine's Alan Ehrenhal calls "an amnesty binge."

It's not just states that are in a forgiving mood. Many cities, including Detroit and Chicago, have raised as much as $4 million by eliminating fees and fines for people paying back parking tickets. Boston's mayor recently announced the city would launch a similar program in the coming months. And if, like most Americans, you've gotten a parking ticket in Washington, D.C. sometime during the past five years, you're in luck. The frenetic ticket writing of D.C. parking police hasn't led to much ticket paying, a discrepancy that's left the capital with a hole in its pocketbook; according Ehrenhal, the city is owed $347 million in unpaid parking fines. This year, despairing of the time and money wasted chasing down the errant drivers, the city has decided to drop the tickets from its books.

Particularly imaginative local governments think of ways to tackle two fiscal crises with one solution. Over the holidays, local libraries in Charleston, S.C., Omaha, Neb. and West Palm Beach, Fla. offered patrons the option of paying their library fines with food items, which the city donated to increasingly utilized — and increasingly empty — area food banks, hit hard by a sour economy.

Tempting as they may be, tax amnesty programs aren't necessarily a great idea, says Daniel Alger, associate professor of economics at Lawrence University. "Unless you're planning to change the way you go after lawbreakers, tax amnesty or any kind of amnesty is not a good idea," he says. "People just figure there's going to be an amnesty whenever times get tough, so what's the point of paying up on time?" Alan LeBovidge, Commissioner, Massachusetts Department of Revenue, is like most officials in that he sees the amnesty program as a necessary evil. "Once in a while you have to institute programs like this," he says. "I wish we didn't have to do this, but we'd be silly not to get the money wherever we can when we need it so badly."

That reasoning doesn't fly with Alger, who argues tough economic times shouldn't provide an excuse to back off implementation of fines and fees, but rather an opportunity for stricter enforcement. He concedes there is one condition that would make amnesty worthwhile: if a new administration comes in with a plan for more energetic collection of fines, it might first offer amnesty in order to clear out any backlog of cases.

Still, unlike the feds, states have to balance their budgets every year. And since they're running an aggregate deficit that's expected to reach $68 billion by June 30, some creative collecting is in order. Will it be enough to pay the bills without raising taxes? Stay tuned.