Sam Pizzigati: Time to close the huge IRS audit gap that favors the rich

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Via OtherWords.org

BOSTON

In 2020, U.S. households annually making over $1 million faced fewer tax audits than households with incomes low enough to qualify for the Earned Income Tax Credit. That had never happened before.

In part, you can blame the Trump administration. But conservatives in Congress actually gave Trump his tax-cutting playbook, as a new Americans for Tax Fairness report makes clear.

Ever since 2010, these right-wing lawmakers have been squeezing the IRS budget, forcing the agency “to drastically pull back on auditing the ultra-wealthy.” Between 2010 and 2020, audits on millionaires dropped a whopping 92 percent.

The super rich have taken full advantage. Nearly a thousand taxpayers making over $1 million a year, Sen. Ron Wyden (D.-Ore.) points out, haven’t even bothered “to file tax returns over multiple recent years.”

Thanks to the Inflation Reduction Act President Biden signed, the IRS gained an $80 billion increase in funding last year. Wyden, who chairs the Senate Finance Committee, wants to see the IRS use that money to increase the audit rate on America’s richest.

But Republicans are pushing to chop IRS funding by $67 billion. That cut, Americans for Tax Fairness calculates, would leave the nation right back where the Trump gang left it: with millionaires getting audited less than 1 percent of the time.

We should be resisting those auditing cuts. And besides cracking down on tax cheats, we need to close the wide constellation of loopholes that help the richest Americans legally sidestep any significant tax bill.

One example? The abuse of nonprofit donations.

Most of us hear the word “nonprofit” and think of the Red Cross or some other familiar charity. These traditional charities fall under section 501(c)(3) of the U.S. tax code.

Other nonprofits — most notably those that come under the tax code’s 501(c)(4) — can engage in activities that have next to nothing to do with providing charitable services. They can own companies indefinitely, as Forbes details, and benefit private individuals. They can lobby lawmakers as much as they want and “get directly involved in politics.”

This flexibility that C4s offer became particularly attractive to America’s deepest pockets in 2015.

Lobbyists bankrolled by the billionaire Koch family wiggled into the tax law that year a charming little loophole that lets the rich take shares of stock they own that have appreciated handsomely and pass them to C4s — without having to pay either a gift tax or a capital-gains tax on the share transfer.

The C4s receiving these hefty gifts of shares, Forbes adds, “can then sell the stock, capital gains tax–free, or hold on to it indefinitely, reaping the dividends.”

Thanks to this loophole, note investigative journalists Judd Legum and Tesnim Zekeria, billionaires like Charles Koch can now use their allied C4s “to spend as much money as they want on political campaigns without disclosing their spending or paying taxes.”

Billionaires should be paying taxes like the rest of us to support schools, health care, and the like. Instead, this handy and inequitable loophole leaves billionaires with the wherewithal to buy still more private jets, trinkets, and mansions — and our democracy.

Blank political checks for billionaires like Charles Koch have no place in a country striving to become a more equal place. So let’s fund the IRS, close the loopholes, and conduct those audits. Now!

Sam Pizzigati, based in Boston, co-edits Inequality.org at the Institute for Policy Studies. His books include The Case for a Maximum Wage and The Rich Don’t Always Win.

Bob Lord: A tax cut for tax cheats

If the most frequently dialed federal agency in America can’t even answer two-thirds of the millions of phone calls it gets, should the government cut its budget?

Congress thinks so. That agency is the Internal Revenue Service (IRS). And lawmakers have hacked at its budget yet again.

Worse still, those cuts will cost more money than they’ll save. They’re basically “a tax cut to tax cheats,” said IRS Commissioner John Koskinen.

Regardless of your feelings about the IRS, Koskinen is right.

The government has slashed the enforcement portion of the IRS budget by nearly 20 percent over the last five years. That’s forcing the IRS to shrink the number of employees working on enforcement by 15 percent.

Talk about being penny-wise and pound-foolish. For every dollar the IRS spent in 2013, it collected $255, according to National Taxpayer Advocate Nina Olson.

Imagine that someone told a CEO that a given department was bringing in hundreds of dollars to his company for every dollar it spent. “It is difficult to see how the CEO would keep his job if he chose not to provide the department with the funding it needed,” Olson said.

Yet, she noted, “that is essentially what has been happening with respect to IRS funding.” Congress has slashed the IRS budget four times in five years. And those cuts are feeding the budget deficit that conservatives supposedly fret about.

It’s all about political expedience. Remember when the IRS faced accusations of singling out conservative nonprofits for tax scrutiny? Along with other experts, I predicted that it would spur further IRS budget cuts. Now Republican lawmakers are taking their revenge.

It’s a vicious cycle. Critics attack the IRS for making mistakes, darkening the public’s view of it. That gives political opportunists a chance to lobby successfully for cuts. A smaller budget virtually guarantees future mistakes by a cash-strapped agency.

Taxpayer services are underfunded too. The IRS now is unlikely to answer even half the phone calls it gets from taxpayers, Olson says. The average wait time is 30 minutes.

So another vicious cycle plays out as taxpayers who try to do the right thing get frustrated. Evasion rates rise. Pressure on the IRS enforcement team mounts.

On top of all that, taxpayers and collectors alike are coping with a tax code that’s more complex than ever. The IRS is responsible for implementing about 40 new provisions of the Affordable Care Act alone, for example.

And it could get more absurd.

The Republican Party is fundraising on the promise of abolishing the IRS altogether, as Citizens for Tax Justice reports. What happens when a country can’t collect taxes?

“Italy and Greece have been stuck in vicious cycles in which tax evasion runs rampant,”Washington Post columnist Catherine Rampell recently wrote. So politicians “raise tax rates to extract more money from the few law-abiding saps still out there, encouraging people to hide economic activity from even higher tax rates, and so on.”

That kind of dysfunction hurts honest taxpayers and bankrupts governments.

Let’s change course before it’s too late.

Bob Lord, a veteran tax lawyer, practices and blogs in Phoenix.  He is an Institute for Policy Studies associate fellow. This was distributed via otherwords.org.

Starving the IRS: Boon for the rich

The GOP Congress seems to be determined to starve the IRS, which as it is doesn't have nearly enough staff or even tax forms. The effect already is to encourage  even more tax cheating, particularly by the rich. They can afford the fancy tax lawyers and accountants to game the system even more than they have been doing. Someone must help offset the loss in revenue, and that will be poorer people who aren't tax-cheats, though most of their tax is to help pay for Social Security, Medicare and Medicaid, not income taxes.