If you’ve ever seen pictures of the IRS cafeteria—end-to-end with a backlog of paper tax returns—you’ll understand why it’s in dire need of an IT upgrade. But what about all that law enforcement funding? You’ve surely heard the horrific stories of the “army” of 87,000 allegedly gun-toting IRS agents coming to terrorize you and your innocent working-class neighbors.
None of that is true, even the 87,000 figure (referring to broader IRS hiring, not just auditor hiring, and without subtracting the number of people expected to retire in the next few years).But more importantly, the IRS desperately need Increase enforcement, especially of tax violations against the wealthy.
So far, we know that the IRS mysteriously dropped the ball when it audited its most high-profile tax target, Donald Trump. Whatever happened there — and we still don’t know why the agency didn’t enforce its own policy of mandating audits of sitting presidents — Trump is far from the only deep-pocketed taxpayer to have escaped scrutiny in recent years.
Audit rates for large corporations and millionaires have plummeted over the past decade. For example, in 2012, 93 percent of companies with assets of at least $20 billion were audited, compared to just 38 percent in 2020, according to Syracuse University’s Transaction Records Access Clearinghouse (TRAC). We’ve seen the number of millionaire audits drop even more.
All this happened thanks to deep cuts to the agency’s budget in the wake of the Tea Party incident took over Congress more than a decade ago.
During that time, the tax code has become more complex; the IRS has taken on more responsibility; and the rich are still protected by a slew of accountants and tax lawyers to help them avoid or evade their tax obligations. Meanwhile, the tax police force has shrunk: The number of personnel in the IRS’ main law enforcement positions has fallen by more than 40% since its most recent peak in 2010.
As a result, Uncle Sam is losing revenue.
TRAC found that the 2012 audit of these corporate giants uncovered an additional $10 billion in unreported taxes; due to reduced audits in 2020, less than half ($4.1 billion) was found.
Estimates of the country’s overall “tax gap” — the difference between all taxes legally owed and what is actually paid — vary, but most estimates have been around $500 billion a year in recent years.
Avoiding tax obligations is not a victimless crime. If Trump (or anyone) doesn’t pay all the taxes he legally owes, that means the rest of us who are really honest – Leona Helmsley’s “little people” – have to Make up the difference with higher tax rates. The vast majority of Americans now obey their taxes and view paying taxes as a civic duty. But the worse the IRS customer service is, and the more blatantly the blame-shifting is made by some high-profile individuals, the more likely others will find it repulsive — and the more tempted to cheat.
To be fair, Republicans do have a point in saying the administration has not adequately explained how it will ensure that law enforcement targets the affluent rather than the working class.
After all, it is the lower-income wage earners who receive the income tax credit among the taxpayers with the highest audit rates. This demographic is 5.5 times more likely to be audited because, as TRAC puts it, they are “easy to flag”.
In other words: It’s hard to track down wealthy tax crooks with their complicated tax returns and sophisticated advisors; it’s simpler to track down EITC claimants, even though fewer dollars are available to each. Investing in the agency’s enforcement, reporting, and IT capabilities, if properly designed, should allow the agency to focus on higher-value objectives.
For whatever reason, Republicans have decided to side with the wealthy tax avoiders. Last month, they mandated a 2% cut to the regular IRS appropriations as part of the omnibus spending bill for fiscal year 2023.Now they’re trying to get rid of nearly all of the IRS’s big bucks, including money to bolster law enforcement with Used to create a new free filing program that will make it easier for people with simple tax returns to file. Republicans gave their legislation the Orwellian name of the Family and Small Business Taxpayer Protection Act.
Between that and the effort to destroy the House Ethics Office, Republicans hardly care about law and order at all.