The American scheme: pushing the tax envelope

For tax attorney Jackie Perlman, a college student's recent question sums up a major shift in Americans' attitudes on the federal income tax. The student's sincere query: "Do I really have to pay taxes?"

Ms. Perlman, a senior tax analyst with H&R Block, says most customers she works with are honest and straightforward in paying their taxes.

But over the past five years, she's observed more Americans beginning to take taxes less seriously. At the root of the change: A widespread perception that the government isn't paying attention. "I think people fear the IRS much less," says Perlman. Her suspicion is supported by data.

A 2001 government survey found that 24 percent of taxpayers think it's OK to cheat on their taxes - up from 13 percent in 1999. And the fiscal consequences are huge: If all Americans had paid their taxes last year, according to IRS estimates, an additional $207 billion would have poured into federal coffers - enough to pay the projected federal deficit for 2003, and have $7 billion to spare.

The shift toward noncompliance, say experts, has likely resulted from the IRS's five- year effort to mend its reputation as an intrusive, bullying bureaucracy. Many tax-policy experts applaud the IRS's attempt to burnish its image. But the public- relations campaign has surpassed expectations - and the drive toward a kinder, gentler enforcer of the tax code may have gone too far.

Now, even middle-class Americans are bending the rules on their returns, using tax schemes that were once solely the province of those who munch pâté de foie gras on private jets.

"I think that people have come to see paying income tax as driving 55 m.p.h: Only a fool would do it," says Deborah Schenk, a law professor at New York University. "If the attitude spreads, the whole system will collapse."

Because of a series of recent budget cuts, the IRS's number of full-time personnel declined by 16 percent between 1992 and 2001. The result: the average taxpayer's chances of being audited dropped dramatically. Five years ago, the IRS audited 1 of every 78 tax filers. Last year, the fraction shrank to about 1 in 170. That steep decline in audits, experts say, has emboldened brash millions to try to pay less. "It's not a secret that the IRS is understaffed and it can't enforce as much as it would like," says Perlman.

According to a report released earlier this month by the General Accounting Office, the IRS has resources to track down only 20 to 30 percent of the people it has identified as likely tax evaders.

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