Just in case you didn’t have a clue who George W. Bush’s friends are, a peek into the recent enforcement actions and inactions of the Internal Revenue Service will offer some guidance on this matter.
Item. While the number of tax returns filed each year has grown by 12 percent in the past decade, the number of agents able to conduct face-to-face audits of taxpayer returns has fallen by 25 percent, from 16,000 to 12,000. Moreover, according to data collected and analyzed by a tax watchdog group at Syracuse University, the targets of these audits tend not to be large corporations and the wealthy but the proverbial “little guy.”
Item. Recently, the IRS announced it was beefing up its audits of those claiming the earned-income tax credit (EITC), which supplements the salaries of low-income workers. To be eligible for this program, your household income may not exceed $35,000. To add insult to injury, as many as 9 million low-income workers are excluded from the President’s proposed $725 billion tax relief package pending in Congress. In other words, the President is excluding from the tax cut those most likely to provide stimulus to the economy by spending any additional income they receive.
Unquestionably, the Administration is legitimately concerned about the estimated $9 billion in fraudulent payments made to EITC recipients each year. So the Treasury Department announced it will ask Congress for $100 million to hire 650 new employees whose job it will be to determine the eligibility of EITC participants, in an effort to ferret out fraud. Still, those who follow the massive $250 billion-a-year underground economy, like Harvard economist Mihir Desai, maintain there would be much bigger bang for the buck if these same resources were devoted to pursuing offshore accounts and other scam tax shelters. As proof, Professor Desai points to evidence he has collected that shows that corporations have managed to avoid as much as $54 billion in taxes yearly by hiding about $155 billion in profits in tax shelters.
As the enforcement resources of the IRS have dwindled over the past decade, the odds of anyone except the working poor actually being audited stand at less than one in a hundred. And the chances of actually being criminally prosecuted for income tax evasion are even smaller.
It is undeniable that the IRS is in dire need of increased funding so it can go after the big fish. But Congress–Republicans and Democrats alike–has historically starved the agency of the funds it needs to pursue major tax cheats. So while it recognizes that there must be a tax collection authority, Congress keeps the IRS at a funding level that makes it virtually impossible for the agency to do a good job. Is it any wonder, then, that tax avoidance may be fast approaching online-music file-swapping as a new national pastime? And the long-term effects of such a prospect can’t be healthy for a democracy, especially with so much red ink looming in future federal budgets.
Former New York hotel queen Leona Helmsley famously told a housekeeper more than a decade ago, “We don’t pay taxes. Only the little people pay taxes.” With George W. Bush in the White House, her words ring even truer today.