Evaluating the Use of Tax Amnesty by State Governments

Abstract

With states finding it more difficult to raise taxes and with declines in federal funding for many types of programs, states are interested in maximizing the revenues available from current tax sources by improving the design and administration of current systems. amnesty programs are currently enjoying great popularity with state governments which see them as a low cost means of collecting delinquent taxes and improving long run compliance with tax codes. Typically, these programs provide delinquent taxpayers with a one-time opportunity to clear their accounts by paying back taxes and interest without being subject to criminal or civil penalties. Recent interest in tax amnesty programs appears to have been triggered by the favorable experience of Arizona and Massachusetts. Arizona conducted the first of the current round of programs in 1982 in response to a budgetary crisis. The program produced a financial windfall of $6 million. In 1983 Massachusetts conducted what has come to be regarded as one of the most successful of the current amnesty programs. This program, which was part of an extensive effort at revenue reform, produced an initial revenue windfall of approximately $84 million during a three-month amnesty period. Between November 1982 and August 1985, thirteen states conducted major tax amnesty programs. According to the National Conference of State Legislatures (NCSL), which serves as a clearinghouse for amnesty information, six more states will complete amnesties in 198586.' These programs have attracted considerable attention among elected officials and public administrators concerned with fiscal policy, but there has been little systematic assessment of the states' experience with amnesty to date. The most comprehensive report on the amnesty experience of the states is Tax Amnesty: A Revenue Alternative, which was published by the National Conference of State Legislators as part of their series State Legislative Reports.2 Prepared by NCSL researcher Corina Eckl, this report offers concise and useful summaries of the major features of each state's program, as well as some brief, common sense, suggestions on designing an amnesty program. This study was originally released in May 1984 and was updated in March 1985. It is intended as a description rather than an assessment of what states are doing in the area of amnesty. * This article identifies major issues underlying the use of tax amnesty by state governments and empirically examines experience of states with amnesty programs. The study is based on a survey of state fiscal agencies conducted in the summer and fall of 1985. Considered first are when and under what circumstances amnesties are likely to be effective. Criteria developed in that analysis are then employed as a framework to compare experiences of 13 amnesty states. Factors examined include planning, structure, performance, and politics. Concerns about current uses of tax amnesties are discussed, and suggestions are made for implementing amnesty programs.