Shame and Fortunes

New York has a new plan to collect back taxes: publicly shame delinquent taxpayers. It’s pretty cheap, as far as collection strategies go. And it doesn’t sound as bad as you’d think, because they plan on notifying taxpayers first.

But there are a few big problems with this plan. First, it’s a huge violation of privacy, that’s prone to error. If there’s a mistake in the records that keeps the state from contacting a taxpayer in time, it might be a mistake on the state’s end — so they could end up naming and shaming someone who doesn’t owe money after all.

And even if the state is able to collect back taxes from taxpayers who are grateful for the amnesty, what if the naming-and-shaming gets the attention of the IRS? According to some reports, owing lots of back taxes could become a felony. If that happens, this plan would essentially give the IRS a list of targets who could be hit with serious penalties. New York State would end up using the Feds as muscle to enforce their own tax claims.

So if they can’t name and shame, what can they do?

• They can negotiate with taxpayers, and find out how much they can pay, and when they can pay it.
• They can wait and let the interest and fines accumulate. If you make paying late more expensive than paying on time, you give everyone an incentive to pay on time, without using scare tactics.
• They can let private collections agencies take a crack at it. It’s a way for the government to get cash up front, and for everyone to try new collections policies.

It’s good to see the government trying to innovate, here. Collecting taxes is not a solved problem, and nobody is even sure what kind of problem it is. Some states treat it as a personal finance management issue, like having a mortgage; others treat it as a crime. It’s probably best to aim for a middle ground: to admit that most late filers are people who plan to pay their taxes, and will be able to pay them, but were unable to get it done on time. Naming, blaming, and shaming won’t help.