Tag Archives: IRS

Defunding The Police

I’m on record describing the slogan “Defund the Police” as one of the all-time stupidest political phrases ever. Not the actual intent of the proponents, which was more than defensible; as I understand it, it was an effort to limit police activity to a focus on actual crime by creating specialized “helpers” to respond to non-criminal episodes like mental health crises. But the slogan not only failed to convey that intent, it screamed support for lawlessness and a mindless anti-police–even “pro crime”– bias.

After all, sneered Republicans, who–other than those who want to evade the rules– would be interested in hobbling law enforcement?

An excellent question, with a not-surprising answer: the obscenely rich plutocrats who–despite MAGA illusions–are really in charge of the contemporary GOP. Following the fiasco triggered by co-President Musk when he torpedoed a bipartisan bill to keep the government open, The New Republic reported on a true “defunding” of authority that has received far too little publicity:

During last week’s negotiations to avert a government shutdown, Congress quietly slashed $20 billion from the Internal Revenue Service.

Republicans have long targeted the tax agency, and their cuts will hurt its efforts to go after rich tax evaders and improve the IRS’s functionality. It’s their second successful cut from President Biden’s $80 billion funding boost to the agency in the 2022 Inflation Reduction Act, as the GOP took away an earlier $20 billion in a 2023 budget deal.

The latest cuts to the IRS will come automatically thanks to the 2023 deal, as the language was repeated in last week’s bill. The Biden administration said the cuts would end up adding $140 billion to the national debt, as they hurt the tax agency’s ability to audit big corporations and the wealthy.

This bit of legislative game-playing shines a corrective light on two of the most egregious lies told by Republicans: that the GOP is a fiscally responsible political party opposed to increasing government debt; and that it is the party of “law and order.”

When Republicans pontificate about excessive government spending, what they are really opposing is anything approaching fair and adequate taxation of the very rich. Deficits, after all, occur when income is insufficient to fund all expenditures. Constant giveaways in the form of tax cuts awarded to the wealthy Americans who disproportionately belong to the GOP increase deficits; the GOP’s “solution” isn’t to raise taxes on the rich; it’s to cut “government waste”–defined as programs that help low and middle-class Americans.

Even under the current tax laws that favor the obscenely rich, however, tax “avoidance” strategies (i.e. cheating) employed by those wealthy Americans allows them to evade paying significant portions of what they owe. Their success in evading payment has been largely due to the (intentional) under-resourcing of the Internal Revenue Service.

The Biden administration addressed the obvious problem by budgeting adequate funds for the agency–which led to action by the GOP that can only be described as “defunding the police.” Depriving the agency of funds to audit tax dodgers can only be attributed to one purpose: allowing rich scofflaws to cheat successfully. There is no other conceivable reason.

The cuts mean that the IRS will conduct 400 fewer major business audits each year, and 1,200 fewer audits of rich individuals. Customer services for taxpayers will also be hurt. According to an agency spokesperson, by 2026, the IRS will only have the resources to answer two of every 10 phone calls to its helplines, and wait times will increase to an average of 28 minutes.

The Inflation Reduction Act’s boost to the tax agency helped relieve a long backlog of tax filings, and created a well-liked free tax filing pilot program. All of that is on the chopping block now, fitting in with Donald Trump and Republicans’ plans to weaken the IRS. The president-elect plans to appoint anti-tax extremist Billy Long to take over the agency next year, who repeatedly tried to abolish the IRS as a member of Congress.

These cuts combined with Long’s planned appointment mean that tax season next year will almost certainly result in headaches for the average taxpayer and windfalls for the wealthy and powerful. A ballooning national debt is also on the horizon. The question is whether Trump and the GOP will be able to get away with all of it.

The reason the “Defund the Police” slogan was so idiotic was that it sounded like a plea to protect transgressors, even though that wasn’t what was meant. Defunding the IRS not only sounds like protecting criminals, it has absolutely no other purpose.

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Defunding Certain Police…

One inevitable result of November’s election will be the failure of any effort–at least in the short term– to make the rich pay their fair share of the national budget. Instead, we will see another gift to the super-wealthy, as the Trump administration rewards its billionaire donors with further tax cuts.

In all likelihood, that gift to the richest among us will be accompanied by cuts to the IRS budget. That budget was finally increased under Biden, in an effort to allow the agency to do its job. Ironically, it is the GOP that really wants to “defund the police”–in this case, the folks policing compliance with tax laws. Republicans have led the decades-long effort to defund the agency, ensuring that there will be fewer audits for the very rich. (Back in the 1990s, the IRS audited more than 20 percent of estate tax returns, but more recently it has been able to audit fewer than 4 percent.)

Congressional Republicans cut $20 billion for law enforcement at the I.R.S. in a recent spending bill. I guess GOP opposition to “defunding the police” depends upon which police you’re proposing to defund…

Policies that confer favorable tax rates (and ensure limited enforcement of those on the books) have a number of negative consequences. There is, of course, the matter of fundamental unfairness–I still remember when Warren Buffett pointed out that he paid taxes at a lower rate than his secretary. But there are notable, negative social consequences as well, as a site called “Fight Inequality” enumerates.

The most important rationale for a wealth tax is to reverse the age-old trend of rising inequality. Wealth taxes are meant to move society in the opposite direction, that of promoting equality. Economist Jomo Sundaram stresses the need to “get more revenue from those most able to pay while reducing the burden on the needy.”

Surprisingly, both the World Bank and the International Monetary Fund (WB-IMF) have come out in support of a wealth tax to counter rising global inequalities. This surfaced in a joint WB-IMF conference on Oct. 19, 2021, which noted “the persistence in income inequality” and concluded that a “progressive tax policy is one of the prime tools for addressing such inequality.”

The mere fact of inequality does not, in and of itself, justify imposing a greater tax burden on wealthy taxpayers. Rather, it’s the results that flow from that inequality. Social unrest is one: many uprisings seen around the globe over the past few years have been triggered by resentment of corporate greed, and the accompanying disproportionate exercise of economic and political power–the creation of plutocracies at odds with democratic principles.

Research tells us that systems of significant inequality are incompatible with social stability. 

The bias in our tax code and especially the fact of lax enforcement against wealthy tax evaders is a major assault against the rule of law, which rests on the premise that the rules apply equally to everyone. (That is particularly damaging at a time when Trump’s escapes from accountability have already undercut  that premise.)

The richest people are also notorious for rampant tax evasion.

The world’s top billionaires, particularly the owners of Amazon, Apple, Facebook, Google, Microsoft, and Netflix have avoided paying billions of dollars in taxes by transferring their wealth to tax havens outside the United States where they also set up shell companies.

Researches have revealed that tax rates by the top billionaires like Warren Buffet, Jeff Bezos, Michael Bloomberg and Elon Musk range from 0.10% to 3.27% while corporate tax rates hover at 35%.

It isn’t just the U.S.

In the Philippines, the richest are not necessarily the top income taxpayers. The Department of Finance’s Tax Watch service showed that for 2012, “only 25 out of the 40 richest Filipinos (as reported by Forbes) are on the Bureau of Internal Revenue’s (BIR) list of top individual taxpayers.”.

Even when identified and charged accordingly, rich tax evaders are also able to escape prosecution or penalties. The BIR’s “Run After Tax Evaders” project has a pitiful accomplishment record. Out of 929 cases against tax evaders from 2005 to December 2018 with total tax collectibles of P148.35 billion, only 14 have been resolved, with only 10 convictions.

It’s difficult for most of us non-billionaires to understand the levels of greed involved, the apparent need for constant acquisition–the grasping for more, more, more. When I was growing up, my mother used to comment that, rich or poor, one could wear only one pair of pants at a time. Presumably, the rich can only sail on one yacht at a time…

There’s a lot wrong with our society today. Tax policy isn’t the reason for all of it, but it’s a big part of the problem. 

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Quasi-Church And State

When does a political ideology become a religion–or a political nonprofit a church?

Those questions weren’t uncommon back in the days of the “evil empire,” when a number of pundits suggested that the fervor of communists and fellow-travelers was indistinguishable from that of devout religious believers. When the world became less bipolar–when there was no longer a single, global menace (or savior)– those comparisons also faded away, but the underlying issue remains.

Now, with a new twist.

Is a religion any belief system characterized by an accepted dogma? Wikipedia defines dogma as “a belief or set of beliefs that is accepted by the members of a group without being questioned or doubted,” and goes on to note that It may be in the form of an “official system of principles or doctrines of a religion” –and may also be “found in political belief-systems, such as Marxism, communism, capitalism, progressivism, liberalism, conservatism, and fascism.”

Belief in a deity characterizes some, but certainly not all religions, so that “marker” isn’t dispositive.

If a political ideology is indistinguishable from a religion, what are the consequences for a legal system that separates church from state?

That is just one of the questions that arises from a recent trend reported by Pro Publica— a growing number of right-wing political entities have been petitioning the IRS to declare them churches.  That status allows such organizations to shield themselves from financial scrutiny, which is undoubtedly the prime (and arguably corrupt) motivation. The article focused on the Family Research Council (FRC), a rightwing think-tank

The Family Research Council’s multimillion-dollar headquarters sit on G Street in Washington, D.C., just steps from the U.S. Capitol and the White House, a spot ideally situated for its work as a right-wing policy think tank and political pressure group.

From its perch at the heart of the nation’s capital, the FRC has pushed for legislation banning gender-affirming surgery; filed amicus briefs supporting the overturning of Roe v. Wade; and advocated for religious exemptions to civil rights laws. Its longtime head, a former state lawmaker and ordained minister named Tony Perkins, claims credit for pushing the Republican platform rightward over the past two decades.

What is the FRC? Its website sums up the answer to this question in 63 words: “A nonprofit research and educational organization dedicated to articulating and advancing a family-centered philosophy of public life. In addition to providing policy research and analysis for the legislative, executive, and judicial branches of the federal government, FRC seeks to inform the news media, the academic community, business leaders, and the general public about family issues that affect the nation from a biblical worldview.”

In the eyes of the Internal Revenue Service, though, it is also a church, with Perkins as its religious leader.

There are advantages to this change in status. Since the FRC was classified as a church (in 2020), it no longer had to file a public tax return, known as a Form 990. Form 990s list the salaries of key staffers, the names of board members and the identities of related organizations.  They also contain information about any large payments to independent contractors and any grants the organization has made. And as the article notes, “Unlike with other charities, IRS investigators can’t initiate an audit on a church unless a high-level Treasury Department official has approved the investigation.”

Very convenient. And not, evidently, an anomaly. FRC’s former parent organization, Focus on the Family, became a church for tax purposes in 2016.

In a statement, the organization said it made the switch largely out of concern for donor privacy, noting that many groups like it have made the same change. Many of them claim they operated in practice as churches or associations of churches all along.

FRC has defended the status change as a protection of its “religious liberty” rights, and noted that Treasury Department rules exempt church organizations from the mandatory coverage requirements for contraceptives. They can also discriminate with impunity–refusing to hire women or LGBTQ citizens.

I’m sure that delights them.

The article identified a rogues’ gallery of extremist rightwing organizations that have chosen to identify themselves to the IRS as churches, and noted that the IRS has been inexcusably lax in determining whether those organizations actually meet the agency’s own definition of a church.

Forgive me if I’m being dense here, but if these organizations are churches, can’t the IRS enforce the Johnson Amendment–the rule that prohibits churches from engaging in nakedly political activity–and strip them of their tax-exempt status? (If any of my readers are tax lawyers, please weigh in…)  FRC pretends that an affiliated entity is responsible for its direct political activities, but that entity apparently has no employees.

At this point, the various “churches” of Theocracy-R-Us are having it both ways.

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Games Republicans Play With Taxes

Media sources have begun warning of a “tax nightmare” ahead for April–filing delays and other administrative headaches , delayed refunds and a variety of mistakes likely to make us crazy.

“Things might be more challenging even than what we anticipate — and what we anticipate is very, very challenging,” a Treasury official told Axios, using the phrase “death spiral” to refer to one set of issues.

Why the warning? Why the situation? Funding. Actually, the lack of adequate funding.

The IRS raises the money America needs. According to official reports, the IRS collects 95 cents of every dollar in federal revenue. So you would think that giving the agency the resources to do its job, and do it efficiently and well, would be a high priority.

It isn’t. Instead, the agency is routinely described as being “in crisis.” Its budget has declined by 20% since 2010, while the number of taxpayers has increased by 19%.

The agency relies on software built in the 1960s, and it is facing a big backlog of paper filings including 6.2 million unprocessed 1040 forms.It doesn’t even have scanning technology– humans open the mail and manually enter information into its system.

According to one report, last year the agency answered only 29 million of the 282 million phone calls it received. And although the vast majority of taxpayers got their refunds fairly promptly last year, the agency was depending upon a significant increase in funding
from the Biden administration’s Build Back Better legislation.

Good luck with that.

So–why has Congress gutted the IRS? Pro Publica tells us in the subhead:

An eight-year campaign to slash the agency’s budget has left it understaffed, hamstrung and operating with archaic equipment. The result: billions less to fund the government. That’s good news for corporations and the wealthy.

The article begins with an example of what we are losing–money that must be made up by law-abiding taxpayers. Us.

In the summer of 2008, William Pfeil made a startling discovery: Hundreds of foreign companies that operated in the U.S. weren’t paying U.S. taxes, and his employer, the Internal Revenue Service, had no idea. Under U.S. law, companies that do business in the Gulf of Mexico owe the American government a piece of what they make drilling for oil there or helping those that do. But the vast majority of the foreign companies weren’t paying anything, and taxpaying American companies were upset, arguing that it unfairly allowed the foreign rivals to underbid for contracts.

Pfeil and the IRS started pursuing the non-U.S. entities. Ultimately, he figures he brought in more than $50 million in previously unpaid taxes over the course of about five years. It was an example of how the tax-collecting agency is supposed to work.

But then Congress began regularly reducing the IRS budget. After 43 years with the agency, Pfeil — who had hoped to reach his 50th anniversary — was angry about the “steady decrease in budget and resources” the agency had seen. He retired in 2013 at 68.

Because the cuts have come over an 8-year period, the utter collapse of the agency has escaped widespread notice. But at this point, according to Pro Publica, the bureaucracy is on life support, and America is losing tens of billions in revenue. (ProPublica estimates a toll of at least $18 billion every year, but admits that the true cost could easily run tens of billions of dollars higher.)

Tax obligations expire after 10 years if the IRS doesn’t pursue them. Such expirations were relatively infrequent before the budget cuts began. In 2010, $482 million in tax debts lapsed. By 2017, according to internal IRS collection reports, that figure had risen to $8.3 billion, 17 times as much as in 2010. The IRS’ ability to investigate criminals has atrophied as well.

And who stands to benefit? Need I share the following paragraph?

Corporations and the wealthy are the biggest beneficiaries of the IRS’ decay. Most Americans’ interaction with the IRS is largely automated. But it takes specialized, well-trained personnel to audit a business or a billionaire or to unravel a tax scheme — and those employees are leaving in droves and taking their expertise with them. For the country’s largest corporations, the danger of being hit with a billion-dollar tax bill has greatly diminished. For the rich, who research shows evade taxes the most, the IRS has become less and less of a force to be feared.

There is much, much more at the link, and it is all depressing. The GOP’s constant insistence that all of America’s ills can be solved with tax cuts is dishonest–and stupid–enough. But tax cuts aren’t the only way the party plays tax games to help its donors–and screw over the rest of us.

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Enforcing The Rule Of Law

Americans spend a lot of time arguing about legislation. For that matter, this blog is predominantly focused on what we call “public policy,” which is essentially a term meaning “laws and regulations.” What tends to get much less attention is an equally important aspect of the rule of law: enforcement.

With the exception of policing–the enforcement of criminal laws–we tend to ignore the behaviors of those who have been authorized to enforce the laws once they’ve been passed. For one thing, it is much harder to ferret out the degree of enforcement. If Congress or a state legislature passes a measure, reporting that fact– or opining about its wisdom– is fairly simple. Figuring out whether the law is being fairly and evenly applied–or applied at all–requires considerably more effort.

Take tax law. Bills to raise or lower taxes receive widespread reporting and discussion. But enforcement–or the lack thereof–is equally important, and gets much less attention. When we are talking about taxes, however, there are two equally effective methods for reducing  tax liability for the mega-rich: lower rates, and inadequate investigation and application of those rates. When staff levels at the IRS are kept too low, when the agency lacks the ability to audit more than a handful of returns, the millionaires and billionaires can be confident that the odds favor the significant success of various tax avoidance ploys.

President Biden has moved to beef up IRS’ staffing, which has been decimated by the former guy’s administration, and six former IRS commissions have applauded that move in a column for The Washington Post.They provide the context.

As former IRS commissioners, we know the challenges of administering the tax system, which has grown in size and complexity, particularly in recent years.

Yet, during the past decade, budget cuts have substantially diminished the IRS workforce. In real terms, the IRS budget is smaller than it was in 2010, and it has 21,000 fewer employees. The IRS has fewer auditors today than at any time since World War II. Moreover, the agency has struggled to keep pace as complicated tax structures, such as partnerships and pass-throughs, have grown in popularity. Workforce attrition has been most pronounced among agents who examine these complicated tax filings: Thirty-five percent fewer revenue agents handle these returns today than a decade ago.

Their essay goes on to remind readers that, despite its reduced workforce, the IRS has seen its responsibilities increase. The agency administers significant provisions of the Affordable Care Act, and during the pandemic, it has been the IRS that has delivered three rounds of federal payments to hundreds of millions of taxpayers. Now, the agency is preparing to deliver periodic payments of the recently-enacted expanded child tax credit.

Thanks to its expanding authority and reduced staffing, the former commissioners report that

There has also been a substantial decline in enforcement scrutiny of high-earners and large corporations with complex returns: Audit rates for millionaires have fallen more than 70 percent since 2011; audits of large corporations decreased from essentially 100 percent a decade ago to less than 50 percent, according to the most recent IRS estimates.

This situation is no fault of the IRS or its committed workforce, who are dedicated to fair implementation of the tax code and the strongest possible support for taxpayers. Provided appropriate resources, the IRS can make good on its commitments.

The former Commissioners agree that the changes and additional resources that President Biden proposes would “produce a great deal of revenue by reducing the enormous gap between taxes legally owed and taxes actually paid — much of it through increased voluntary compliance.”

The Biden proposal includes provisions on third-party reporting, leveraging information from financial services providers to learn basic information about account inflows and outflows. This information could assist taxpayers in filing accurate returns and help the IRS better focus collection efforts. Research shows that when the IRS has access to third-party reporting, compliance rates top 95 percent. Without third-party information reporting, compliance rates are below 50 percent. Reliable information is critical to an effective and fair tax system.

The statistics cited in the essay demonstrate the importance of effective enforcement. It isn’t simply tax rates that favor the rich–lax enforcement costs an enormous amount that the rest of us must make up. Estimates are that uncollected taxes from those sources are equal to the total taxes paid by the lower 90 percent of individual taxpayers.

It is long past time to give the IRS the resources it needs to ensure that corporations and billionaires pay their taxes. If enforcement is fair across the board, the rest of us will feel a lot better about paying ours.

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