If you’ve ever seen a photo of the IRS cafeteria — stacked end-to-end and shoulder-high with backlogged paper tax returns — you’ll understand why it desperately needs an IT upgrade. But what about all that enforcement money? Surely you’ve heard the scary stories about the “army” of 87,000 supposedly gun-toting IRS agents coming to terrorize you and your innocent, working-class neighbors.
None of that is true, not even the 87,000 figure (which refers to broader IRS hiring, not just hiring of auditors, and doesn’t subtract the many expected to retire over the next few years). But more to the point, the IRS desperately needs to increase enforcement, particularly against wealthy tax scofflaws.
By now, we know that the IRS mysteriously dropped the ball in auditing the highest-profile of tax targets, Donald Trump. Whatever happened there — and we still don’t know why the agency didn’t enforce its own policy of mandatory audits of the sitting president — Trump is far from the only deep-pocketed taxpayer with dodgy or aggressive tax practices who has escaped scrutiny in recent years.
Audit rates of mega-corporations and millionaires have plummeted over the past decade. In 2012, for example, 93 percent of companies with at least $20 billion in assets were subject to audit, versus just 38 percent by 2020, according to Syracuse University’s Transactional Records Access Clearinghouse, or TRAC. We’ve seen even sharper declines in audits of millionaires.
This is all happening thanks to enormous cuts to the agency’s budget following the tea party’s takeover of Congress a little over a decade ago.
Over that time, the tax code has become more complex; the IRS has taken on more responsibilities; and the affluent remain shielded by armies of accountants and tax attorneys to help them either avoid or evade their tax obligations. Meanwhile, the tax police force has shrunk: the number of IRS personnel in key enforcement occupations has fallen by more than 40 percent since the recent peak in 2010.
Uncle Sam is losing revenue as a result.
Audits in 2012 of those corporate giants had turned up an additional $10 billion in unreported taxes, TRAC found; less than half that ($4.1 billion) was found as a result of those reduced audits in 2020.
Estimates of the nation’s overall “tax gap” — the difference between all taxes legally owed and those actually paid — vary, but most place it somewhere around half a trillion dollars annually in recent years.
Shirking tax obligations is not a victimless crime. If Trump (or whoever) doesn’t pay all the taxes he legally owes, that means the rest of us who actually are honest — Leona Helmsley’s “little people” — must make up the difference through higher tax rates. Right now, Americans are overwhelmingly tax-compliant, and regard paying taxes as a civic duty. But the worse IRS customer service gets, and the more flagrantly some high-profile figures shirk, the more resentful the rest of the population might become — and the more tempted to cheat, too.
To be fair, Republicans do have a point when they say the administration has not adequately explained how it will ensure enforcement will target the well-heeled, rather than the working class.
After all, among the taxpayers with the highest audit rates are low-income wage earners receiving the earned income tax credit. This population is 5½ times as likely to be audited as everyone else because, as TRAC puts it, they are “easy marks.”
In other words: Going after rich tax cheats is hard, because they have complex tax returns and sophisticated counsel; going after EITC claimants is simpler, even if the dollars available from each are fewer. Investing in the agency’s enforcement, reporting and IT capabilities, if the investment is designed wisely, should enable the agency to concentrate on higher-value targets.
For whatever reason, Republicans have decided to stay on the side of the rich tax cheats. Last month, they forced a 2 percent cut in regular IRS appropriations as part of the omnibus spending bill for fiscal 2023. Now, they’re gunning to rescind nearly all of that bigger chunk of IRS funding, including money for increased enforcement and for creating a new free-file program that would make it easier for people with simple tax returns to file. Republicans have given their legislation the Orwellian name of “Family and Small Business Taxpayer Protection Act.”
Between this and efforts to gut the House ethics office, it’s almost like Republicans don’t care about law and order at all.