Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, September 21, 1993 TAG: 9309210119
SECTION: NATIONAL/INTERNATIONAL PAGE: A-6 EDITION: METRO
SOURCE: Knight-Ridder Newspapers
DATELINE: WASHINGTON LENGTH: Medium
If people paid their income taxes with their credit cards, the government could cut down paperwork and be more efficient, according to Vice President Al Gore's proposal to cut federal waste.
But financial planners say the proposal is filled with peril for taxpayers.
"I think it will be a disaster," said Gregory Sullivan, a certified public accountant and certified financial planner in McLean, Va. "The government is looking for an easy way to collect while putting the burden on the credit card company and the consumer."
Sullivan projected that some consumers' revolving debt will snowball.
"You'll have the people who add the taxes to the credit card and pay the minimum amount and the next year rolls around and they haven't paid off the previous year," he said. "They add another year's taxes, and they're going to spiral themselves into a debt and eventually have to file themselves into bankruptcy."
The proposal to allow certain taxpayers to charge their taxes is contained in Gore's performance review, a catalog of about 800 proposals to make the government work better and cost less. The concept was proposed once before, in 1991, but it was attached to a larger bill that was vetoed by former President Bush.
Internal Revenue Service officials say allowing people to use charge cards would help the agency get through tax season more quickly.
"It's a different process to have a credit card account number against which the charge can be placed, than to have a paper check which has to be processed and brought to a bank," said Don Roberts, an IRS spokesman.
According to Roberts, charging taxes could be popular among taxpayers as well. Some people already use checks issued by their credit cards, or use their cards to get cash advances to pay their taxes.
"There are people who would be more than happy to put their taxes on a MasterCard or a Visa. It gives them another month to pay their bill," he said.
However, with the average interest rate for bank cards at 17 percent, that extra time could do taxpayers more harm than good.
In 1991, 22 percent of tax filers paid an average of $2,074 in additional taxes after withholdings. If they had charged the balance and made the minimum payments of 2 1/2 percent of the monthly balance, it would take them 14 years and four months to pay off the debt, according to Bankcard Holders of America, a consumer group based in Herndon, Va. The banks would gain $2,206 in interest.
"The banks haven't lowered credit card interest fairly, so consumers who use their credit cards pay a huge penalty," said Edmund Mierzwinski, consumer program director of the U.S. Public Interest Group. "Consumers should be wary of paying taxes by credit card if they don't use their credit wisely."
by CNB