By some estimates, the richest 1 percent of Americans manage to avoid paying about a quarter of a million dollars in taxes each year. New government data now shows that the audits of super rich and big corporations have hit a new low, leaving billions of dollars in unrecovered taxes at just the point when lawmakers say new revenue is needed to fund infrastructure and climate investments are.
In response, two progressive democratic lawmakers have passed tax evasion laws.
The new Internal Revenue Service (IRS) figures, compiled by researchers at Syracuse University, show that over the past eight years, the number of audits of people earning more than $ 1 million has decreased by 72 percent . Overall, 98 percent of those who earn more than $ 1 million failed to pass an exam in the past year.
Similarly, the number of American companies’ audits has fallen by 55 percent. In 2012, almost all corporate giants were audited. In 2020, however, almost two-thirds of these companies were not audited.
Source: Syracuse University’s Transactional Records Access Clearinghouse
Amid this decline in control of the wealthy, eighty-eight progressive groups wrote in a letter to the Biden government: “Since 2011, auditing rates for millionaires who are disproportionately white have fallen more than twice as much as those for taxpayers who claim so (Earned Income Tax Credit), who are disproportionately colored people. Exam coverage is greatest today in many low-income, predominantly black, rural districts. “
The large reduction in audits of the rich contributes to the tax gap between the amount of taxes owed and taxes paid. In 2012, audits of high net worth individuals and large corporations generated sales of approximately $ 29 billion. Eight years later, far fewer exams recovered less than $ 7 billion. Criminal prosecution and Justice Department tax convictions IRS remittances have both hit all-time lows.
“At a time when Americans are facing growing economic inequality and financial hardship from the COVID-19 pandemic, the IRS is slipping billions of dollars in tax revenues,” wrote Syracuse researchers. “As public attention focuses on how the country can restore confidence in our democratic institutions, it should not be overlooked how the nation can better ensure that our income tax laws are administered fairly and effectively.”
The situation is the result of both the Agency’s priorities and budget cuts.
A recent report by the Inspector General of the Treasury concluded that the IRS, “High-income taxpayers generally have no collection priority and there is no strategy to combat non-payment by high-income taxpayers.” As evidence, the report showed, that the agency couldn’t get back more than 60 percent of the $ 4 billion in back taxes owed by those who made more than $ 1.5 million.
At the same time, general enforcement has been hampered by draconian budget cuts that, according to Syracuse, have resulted in 43 percent fewer IRS tax officers and 26 percent fewer IRS investigators over the past decade.
Between 2010 and 2018, the IRS budget was cut by more than 20 percent, and the enforcement budget was cut by 24 percent, according to the Center for Budget and Political Priorities.
Source: Center for Budget and Policy Priorities
“The IRS is essentially the US government’s accounts receivable division,” wrote the National Taxpayer Advocate, an independent watchdog within the agency. “However, the IRS’s budget does not reflect the critical role the agency plays and as a result the shrinking workforce and the need to improve their IT skills continue to hinder the agency’s work.”
With the passing of the $ 1.9 trillion stimulus package, the drumbeat of budget cuts and austerity measures is already growing louder for lawmakers and Washington think tanks trying to raise the alarm about the national deficit. It may seem like this may complicate any attempt to top up the IRS budget, but it’s actually the other way around: increasing the agency’s resources would likely reduce the deficit.
A July 2020 report by the bipartisan Congressional Budget Office found that a $ 40 billion increase in funding for the enforcement of the IRS would increase revenues by more than $ 100 billion over the next decade. Chye-Ching Huang, professor of tax law at New York University, found that the Treasury Department estimated in 2013 that “every additional dollar spent on enforcing the IRS translates into about $ 6 in taxes owed right back be brought in ”.
To that end, Representatives Ro Khanna (D-CA) and Peter DeFazio (D-OR) – both members of the Progressive Caucus of Congress – recently tabled separate bills that would increase the enforcement budget and audit rates of the IRS.
Khanna’s legislation is the more aggressive of the two. The bill would increase the IRS enforcement funding by $ 70 billion and require the agency to provide 95 percent of large corporations, 50 percent of those who have an annual income of more than $ 10 million, and 20 percent of those who do Report income greater than $ 1 million to review.
“After years of Republican budget cuts and skewed priorities, the IRS is now scrutinizing those who make $ 20,000 roughly as high as the top 1%, even though the vast majority of unpaid taxes are due to wealthy tax evaders,” said Frank Clemente by Americans for tax justice who advocate higher taxes on the rich. “Rep. Khanna’s bill would go a long way in getting things right. It prescribes minimum audit levels for the wealthy and large corporations and gives the IRS the resources it needs to ensure that those at the top are paying their fair share of taxes. “