Oklahoma Raises $81 Million in Tax Amnesty, but is that a Success?

December 08, 2008

Oklahoma revenue officials are celebrating the fact that their recent tax amnesty has brought in over $81 million in previously unpaid taxes, twice the goal. Taxpayers had until November 14 to pay, and in return had penalties, interest, and fees waived.

Tax amnesties are a favored tool used by states in a crunch to raise some quick money. The revenue raised is at least theoretically money that would otherwise go uncollected (the so-called "tax gap"), and there's a likelihood that a tax cheat who pays once will continue paying in the future. But there are strong downsides to tax amnesties, and judging their success should go beyond looking at the amount of money raised.

If a state does amnesties frequently enough, people will come to expect them and that encourages non-compliance. Oklahoma just had a tax amnesty in 2002, and waiving all the penalties and fines can leave law-abiding taxpayers feeling a little left out. (The Oklahoma Supreme Court declined to hear a case alleging that revenue officials do not have the power to suspend the imposition of interest and penalties.)

Also, our 1985 paper on tax amnesties suggests that compliance in amnesties is usually brought about by increased enforcement and publicity, not the amnesty itself. Enforcement costs and revenue presumably have some trade-off considerations.

My colleague Alicia Hansen put it well:

[N]ot all tax delinquency is intentional. The income tax code is so complex that even well meaning, law-abiding individuals may not realize they are not paying their share.  What we wrote in 1985 holds true today: if lawmakers decide to implement tax amnesty programs, they should be accompanied by fundamental tax reform that makes the tax code simpler and easier to comply with.

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