As it turns out, in recent years, even as wealthy Americans were claiming an ever greater share of the nation’s wealth, the IRS was less and less likely to audit them, according to a report from the U.S. General Accounting Office that was commissioned by Rep. William Pascrell (D-NJ-09), chair of the House Ways and Means Subcommittee on Oversight.
It’s his instinct to ask for this kind of vexing research that makes me believe that this 85-year-old Congressman is a not just a New Jersey treasure, but a national one.
For decades, as Wall Street and the lobbyists whose mission it is to protect great wealth, custom designed the tax code and then pressured Congress to defund the IRS, it was Pascrell that’s kept on their case. He’s never forgotten that he works for the working class voters in places like Paterson that send him back to Congress election after election.
In fact, he’s clear it’s a privilege.
“The findings by the GAO on IRS auditing rates are another five-alarm fire bell for our national system,” wrote Pascrell in a statement before his May 18 hearing on the findings. “Over the last decade, accountability for the wealthiest tax cheats has plummeted so far it almost hits the floor. Looking at the numbers, a tax filer making less than $25,000 a year is more than twice as likely to be audited as someone with between $200,000 and $500,000 in income. I worry well-off taxpayers are not going to be pursued at the rate things are going. Make no mistake: these trends are the logical result of Republican policies to gut tax enforcement in America so the wealthy can avoid paying their fair share.”
Pascrell continued. “Americans’ confidence in their tax system will itself continue to collapse so long as the rich do whatever they want. Building a truly fair system demands fixing the IRS so it can hold rich tax cheats accountable. Creating tax fairness is essential for our economy and for American democracy.”
According to the GAO analysis, the IRS’s FY 2021 budget was $2.7 billion less than FY 2010, a 22 percent cut in real terms even as the volume of tax returns being filed continued to grow. The agency’s 74,200 workforce is equal to what it had in 1973. As a consequence, the number of IRS revenue agents is down by 40 percent and tax examiner by 18 percent between 2011 and 2020.
As a consequence of the funding squeeze play with Congress, the IRS reduced audits across all income cohorts and it was the higher end earners who saw the greatest reduction in oversight by the agency. The results were perverse with the neediest families filing for the Earned Income Tax Credit that got greater scrutiny.
“Audit rates for taxpayers with higher incomes decreased the most, largely because higher-income audits tend to be more complicated and require auditors to manually review multiple issues, according to IRS officials,” reported the GAO. “Because audit staffing has decreased, IRS cannot conduct as many of these audits, compared to lower-income audits which are generally less complex and involve more automated processes. In addition, IRS officials stated that the number of returns filed by higher-income populations is growing, meaning more audits are needed to achieve the same audit rate.”
The GAO found that the IRS required fewer hours per audit for lower-income taxpayers because many did not respond to the IRS’s correspondence or provide inadequate responses. According to a 2021 Report by the National Taxpayer Advocate in its review of taxpayers filings with under $50,000 in income, the IRS closed 35 percent of the audits without a response from the taxpayer and 14 percent of these involved a notice that was not deliverable to the taxpayer.
At the May 18 hearing, Rep. Stacey E. Plaskett (D-VI), who is Black, recounted her family’s negative experience with the IRS.
“My dad was a New York City Police Officer and thus had quite a bit of overtime,” Placket said. “My mom worked in the court system in New York. They were both in union members and made decent salaries. Gave a lot to charity. My mother had been an orphan and so gave back to the organization that supported her as a child. And I can remember an [IRS] auditor coming to our home and the absolute fear that my parents had —in the 1970s— this white man coming to their home an auditing them and his remarking on what a nice home it was — it really brought consternation to them as well.”
Plaskett cited research that it was high end income earners that were more likely to try and evade taxes or shave their income than the taxpayers of more limited means.
“I believe in data and I think the data would bear out that the IRS would receive more in terms of going after fewer individuals who make greater amounts of money than ones making $200,000 or less,” Plaskett suggested.
“In terms of the under reporting of income tax and tax gap, I think it is important to note that of the $245 billion in under reporting that I mentioned —$110 billion of that is related to Schedule C income, basically sole props [proprietors] or small businesses that report on a 1040,” testified the GAO’s James R. McTigue. “It represents about 25 percent of the gross tax gap and to the extent that it can bring down that under reported it would be beneficial.”
Based on the GAO findings, the money spent on campaign donations and lobbying by the wealth protectors on Wall Street got results. Talk about return on investment! Pascrell said at the May 18 hearing that there’s a $600 billion gap between what the IRS is owed and what it collects. Hmm. Wonder where it is?
“There’s something wrong there—that’s a piece of change—it’s not chump change,” said Pascrell.
Back in March, Pascrell described what he learned from the block buster Pandora Papers that was published by the Investigative Consortium of Investigative Journalists, a group of 300 reporters from around the world with a keen eye for world class tax evaders. In December, he held hearings into how our nation’s wealthiest families were successfully passing their vast wealth “from one generation to the next untouched” permitting their inherited wealth to grow “exponentially” by evading taxes.
“The Pandora Papers probe exposed the secret holdings of 130 billionaires in 45 countries,” wrote Pascrell. “Piggybacking on that historic work, our hearing further unmasked an extensive web of shelters used by the richest American families. We showed they’re doing to right here on our shores.”
Specifically, states like South Dakota and Wyoming “have become the Grand Cayman of the prairie by enacting laws that are nothing less than open invitation to well-heeled families to conceal their money in the Great Plains,” wrote Pascrell. “My fear is that more states will seek to emulate those outliers while facilitating titanic tax avoidance by our wealthiest citizens.”
That’s right, South Dakota and Wyoming, two Republican states are both quite dependent on the same federal government whose taxes they want to help the ultra-rich help avoid. Wyoming gets $1.58 for every dollar it sends to Uncle Sam while South Dakota does even better at $1.65.
Seems like “chump change”.