REAP is good role model for federal action

Use carrots, sticks to prompt tax payments

AS THE SENATE’S $1.2 trillion bipartisan infrastructure plan advances, one approach to paying for the bill could be stepped up enforcement of federal tax collections. Just this Sunday during a CNN interview, Ohio Senator Rob Portman, a Republican member of the bipartisan group, announced (apparently unilaterally) that the stepped-up IRS enforcement approach was suddenly off the table.

This would be a mistake and a missed opportunity. While there’s been a good deal of debate regarding whether such an approach will work, there’s no need to speculate.  Stepped up tax enforcement does work, and Massachusetts proved it during the Dukakis administration when a groundbreaking revenue collection program was undertaken in an effort to collect taxes from scofflaws.

As chief legal counsel to the Revenue Department in those years, I was in the forefront of this effort. Dukakis, returning to the governor’s office after a four-year hiatus, appointed the dynamic Ira Jackson to lead the Revenue Department.  Ira threw himself and the entire organization behind the effort, known as REAP (“Revenue Enhancement and Protection”). REAP was Ira’s idea, and he worked with a former Department of Revenue commissioner, Nick Metaxas, to draft the bill that would become law in 1983.

REAP was smartly designed to offer both carrot and stick. First, the carrot: a three-month amnesty program for all tax scofflaws. The message was clear to all tax avoiders: take advantage of the three-month window and avoid harsh penalties. Fifty-two thousand Massachusetts taxpayers took advantage of REAP’s amnesty program, netting $86 million in revenue for the Commonwealth.

Once the amnesty period was over, we got to work stepping up enforcement.  We established a Problem Resolution Office to assist taxpayers who needed help navigating through the process of understanding and filing properly.  But we also went after scofflaws, notably locking the doors of restaurants and other businesses whose owners had failed to pay meals or corporate taxes. That effort reaped significant revenue, bringing an additional $1.3 billion to the Commonwealth during the next four years.

The high-profile enforcement efforts had another effect: an additional $1.7 billion came into the Commonwealth’s coffers from taxpayers who were observing the enforcement activities and decided that their days of tax-cheating needed to end.  Better to pay interest and penalties than face stiffer law enforcement activity.

The program was hugely successful not merely because of the substantial revenue it collected, but by the message it sent to law abiding taxpayers. As Jackson said at the time, “It means treating honest taxpayers like they were valued customers and not victims of an unaccountable and surly bureaucracy – what many citizens believe the IRS now is. It means, secondly, tough laws, visibly and vigorously enforced. And it means an appeal to conscience: dealing with the people truthfully and appealing to their sense of citizenship and patriotism, if you will.”

There is a great debate taking place in America today regarding how best to pay for transportation investments. The gas tax and road pricing have come under attack by many progressives who view those methods as regressive. The gas tax is certainly regressive, but road pricing need not be – it would be just as easy to means test road pricing as it is to means test transit fares. And we will need to thoughtfully consider what stable, fair, and transparent revenue sources will replace the gas tax and transport sector carbon pricing once more and more drivers transition to electric vehicles. I firmly believe that road pricing and non-residential parking pricing ought to be a large part of the future approach to transportation funding, and we ought to be advancing efforts in those directions now, and not wait until we are (once again) playing catch-up and shortchanging our transportation needs.

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In the meantime, I have no objection to getting critically needed infrastructure projects moving by paying for them, at least in part, by stepped up federal tax enforcement.  We did that in Massachusetts under the REAP program, and it worked beyond anyone’s reasonable expectations at the time.  I hope the Senate and the House will enact the bipartisan infrastructure bill into law before Labor Day and encourage the negotiators to look to the Dukakis-era REAP program as firm evidence that there are, indeed, substantial revenues in store if we just focus on making certain that all taxpayers pay their fair share.

James Aloisi is a former Massachusetts transportation \secretary and member of the TransitMatters Board.  He served as chief legal counsel for the Department of Revenue from 1983 to 1987.