On the other hand, auditing the rich is hard.

October 6, 2019 9:16 PM

Until Congress restores the funding it slashed from the agency over the past nine years, the IRS will continue to audit the working poor at about the same rate as the wealthiest 1% because it is the most efficient use of available IRS examination resources. (ProPublica updating their earlier reporting)

More from the second and latest article from ProPublica:

ProPublica reported the disproportionate audit focus on lower-income families in April. Lawmakers confronted IRS Commissioner Charles Rettig about the emphasis, citing our stories, and Sen. Ron Wyden, D-Ore., asked Rettig for a plan to fix the imbalance. Rettig readily agreed.

Last month, Rettig replied with a report (Documentcloud), but it said the IRS has no plan and won’t have one until Congress agrees to restore the funding it slashed from the agency over the past nine years — something lawmakers have shown little inclination to do.

On the one hand, the IRS said, auditing poor taxpayers is a lot easier: The agency uses relatively low-level employees to audit returns for low-income taxpayers who claim the earned income tax credit. The audits — of which there were about 380,000 last year, accounting for 39% of the total the IRS conducted — are done by mail and don’t take too much staff time, either. They are “the most efficient use of available IRS examination resources,” Rettig’s report says.

On the other hand, auditing the rich is hard. It takes senior auditors hours upon hours to complete an exam. What’s more, the letter says, “the rate of attrition is significantly higher among these more experienced examiners.” As a result, the budget cuts have hit this part of the IRS particularly hard.

For now, the IRS says, while it agrees auditing more wealthy taxpayers would be a good idea, without adequate funding there’s nothing it can do. “Congress must fund and the IRS must hire and train appropriate numbers of [auditors] to have appropriately balanced coverage across all income levels,” the report said.

On December 13, 2018, the Congressional Budget Office posted an option from Options for Reducing the Deficit: 2019 to 2028 which stated that "Increasing the funding for the IRS's enforcement initiatives (often referred to as program integrity initiatives)—activities, such as expansions of audits and collections, that could improve compliance with the tax system—would, in CBO's estimation, cause federal revenues to increase."

posted by filthy light thief (50 comments total)

The Rich Really Do Pay Less Taxes Then You (NYtimes)

me, angry
me, also angry
posted by The Whelk at 9:28 PM on October 6, 2019 [17 favorites]

I didn't think I could be even more disgusted with the timeline. I might need a break.
posted by j_curiouser at 9:58 PM on October 6, 2019 [5 favorites]

I wrote a paper in law school how the IRS audit section was being defunded. That was in the 90s. A vicious circle.
posted by kerf at 10:09 PM on October 6, 2019 [12 favorites]

I'm rich, I DON'T want to be audited, AND I make the laws, what could go wrong??
posted by bleep at 10:18 PM on October 6, 2019 [11 favorites]

I finally did my taxes a few days ago, and TurboTax automatically gave me the earned income tax credit. I'm going to be spending the next several months worrying that I made a mistake and will get audited.
posted by shapes that haunt the dusk at 10:20 PM on October 6, 2019 [3 favorites]

I;m in the 9% of incomes in the US. My Mom, a retired public servant, pays more taxes then I do and I don;t even take advantage of some of the more common tax avoidance schemes.

RAISE MY FUCKING TAXES. And with increasing, exponential pain up the line
posted by The Whelk at 10:28 PM on October 6, 2019 [42 favorites]

“the rate of attrition is significantly higher among these more experienced examiners.”

Where do they generally end up going?
posted by coolname at 10:40 PM on October 6, 2019 [3 favorites]

The funny farm, or higher paid gigs in accounting firms that specialize in tax avoidance. Regulatory capture is the love that holds the top-end economy together.
posted by Ignorantsavage at 11:01 PM on October 6, 2019 [5 favorites]

Where do they generally end up going?

Presumably to the same place whatever remaining actual grownups in DC went when they departed, since there don't seem to be any left there now.
posted by Greg_Ace at 11:07 PM on October 6, 2019 [2 favorites]

BRB, off to the capitol to make my fortune selling moral compasses.
(even though it will almost certainly raise my taxes)
posted by Greg_Ace at 11:09 PM on October 6, 2019 [1 favorite]

The Rich Really Do Pay Less Taxes Then You (NYtimes)

I had to look at this a few times to really notice it, but watch the animation a few times, but look at the left side of the graph, which thanks to the graph's scale, encompasses the entire bottom 50% of the income distribution in a pretty small space.

It's not only that the rich are paying less; everyone else is paying more. And when it comes to someone's budget, a 5% effective tax increase on a family making a 30th percentile income is massive.
posted by zachlipton at 11:20 PM on October 6, 2019 [7 favorites]

The Helmsley Doctrine (“only the little people pay taxes”) is now settled law.
posted by acb at 1:40 AM on October 7, 2019 [1 favorite]

RAISE MY FUCKING TAXES
I don't think there's anything actually stopping you from putting your money where your mouth is and kicking more into the kitty. I for one have no desire to see my taxes raised.
posted by Hal Mumkin at 2:51 AM on October 7, 2019 [2 favorites]

RAISE MY FUCKING TAXES

Whelk, you are more than welcome to pay more by making a "donation" to the US government for "debt reduction", or, when you file your taxes, don't take any of the itemizations you would otherwise be due.
posted by tgrundke at 3:14 AM on October 7, 2019

I think you're both missing the point rather spectacularly. The point isn't that The Whelk wants to pay more taxes personally, it's that someone in his position should not be obliged to pay a smaller proportion than someone earning less. Asking him to personally donate money to the IRS does not address that issue at all.

Like, similarly, Warren Buffet thinks millionaires should pay more taxes than their secretaries, using himself as an example. Along Buffet personally to give more to the IRS does nothing to address the differential tax burden that he was actually talking about. It's a cheap rhetorical dodge and distraction from engaging with what's actually being said: taxes on the rich are unfairly low.
posted by Dysk at 3:19 AM on October 7, 2019 [162 favorites]

It's like responding to someone complaining of a speed limit that feels dangerously fast on a twisty road by saying "you can just drive under the limit" which is true, but spectacularly misses the point.
posted by Dysk at 3:21 AM on October 7, 2019 [90 favorites]

One can point out taxes for the rich are too high and make the argument that someone complaining about their own low taxes is free to pay more themselves. These things are not mutually exclusive. Societal change often requires buy-in from the powerful.
posted by Anonymous at 3:35 AM on October 7, 2019

One can point out taxes for the rich are too high and make the argument that someone complaining about their own low taxes is free to pay more themselves.

One can, but that wasn't what was going on here, really. It was people making the statement on the Whelk's personal situation when it was being used as an illustrative example (made rather clear in the original comment). Without an actual argument for (or even statement of the belief that) taxes on the rich being too high, it will inevitably come across as a shitty "gotcha" attempt. If a wider problem is being discussed, you need to address the wider problem in response. Ignoring the fact that it was being used as an example to discuss a wider problem isn't a winning strategy, and is indistinguishable from (if being generous - I'd posit it's more like 'the same as') using an implication of personal hypocrisy to distract from the actual issues, just like the "and yet you live in society, how curious" guys.
posted by Dysk at 3:41 AM on October 7, 2019 [37 favorites]

Societal change often requires buy-in from the powerful.

Also, isn't this (and in fact, all of your comment) a reason to celebrate The Whelk and others like him, not to attempt to undermine them with cheap games of rhetoric?
posted by Dysk at 3:46 AM on October 7, 2019 [20 favorites]

One of the related articles from ProPublica is this one: Senators Urge IRS to Focus on Big-Time Tax Cheats, and after reading that I'm wondering if there's any legal reasons the IRS can't just. . . decide not to audit anyone below a certain income? Or reallocate resources to focus more on higher income cheats?

The articles taken as a whole kinda suggest that the IRS director & staff have some leeway in deciding who to audit and where to direct their enforcement efforts, but are there any kind of regulations or parameters about, I dunno, "maximum efficiency" or something that limits said leeway?

IOW, could a (hypothetical) IRS Director Bernie Sanders just go "Fuck it, if this is the enforcement budget I got, it's what I got, but I'm gonna spend 90% of it auditing folks with incomes over $1 million a year"?

Anyone have any idea?
posted by soundguy99 at 4:15 AM on October 7, 2019 [4 favorites]

As someone from the UK who's tax is paid from my wages via PAYE and who's only understanding of American taxes is that you have to "do" them once a year, how difficult is it? Does it take up a lot of your day? How much, on average do you pay?
posted by Chaffinch at 4:20 AM on October 7, 2019

The answer to your questions is "It depends." Taxes (U.S., state, and sometimes local) are withheld from your paycheck but then at least once a year you have to fill out a form - or multiple forms - to determine if the correct amount was withheld, which depends on your income level and income sources and marital status and whether you own property or have children and and and and . . .

And you have to do this for Federal (national) taxes - the IRS - and the state and your local municipality, although state & local tax forms are usually derived from the federal forms and calculations and are somewhat simpler.
posted by soundguy99 at 4:32 AM on October 7, 2019 [2 favorites]

If your goal was to have the government increase your taxes because they are structurally inequitable, and you know they are running a deficit which is one of the other biggest arguments for tax reform, why would you help them show their books are balanced by voluntarily giving more than is required by law?
posted by solotoro at 4:39 AM on October 7, 2019 [7 favorites]

Societal change often requires buy-in from the powerful.

This is learned helplessness.
posted by mhoye at 4:55 AM on October 7, 2019 [21 favorites]

The biggest problem with the "only little people pay taxes" thinking isn't simply a moral one. It's that it encourages tax fraud, which compounds the problems of income inequality by, over a long enough timeline, effectively defunding the government. See Greece, for an an example.
posted by DirtyOldTown at 4:58 AM on October 7, 2019 [12 favorites]

Americans have a nightmarish system of tax forms to fill out because the companies that sell Tax Form Filling Out Services have successfully lobbied against Tax Form Simplification Reform for the past few decades. Just another tiny brick in the wall of capitalists capturing regulators for their own benefit.
posted by seanmpuckett at 5:08 AM on October 7, 2019 [26 favorites]

The rich are always going to try to make themselves into a tax-free aristocracy, and the rest of us always have to keep fighting against that. There is no way around the permanent struggle.
posted by clawsoon at 6:02 AM on October 7, 2019 [6 favorites]

As someone from the UK who's tax is paid from my wages via PAYE and who's only understanding of American taxes is that you have to "do" them once a year, how difficult is it? Does it take up a lot of your day? How much, on average do you pay?

Americans also PAYE, but we pay in general rate bands and not taking into account lots of tax reductions. "Doing your taxes" is reconciling what you've actually paid as a generic earner of $X against what you should have paid given your own personal financial situation. You can game your PAYE to try to keep your taxes-actually-paid close to your taxes-should-have-been-paid but only with some clumsy tools.

For most people, doing this with paper and pencil would take maybe 15 minutes. Doing it with software takes longer because the software will keep asking you a huge list of things you say no to. The tl;dr is that the complicated parts for humans who don't own a business are typically "itemizing your deductions," which is where you deal with most tax-reduction schemes, but 70-90 percent of taxpayers take a "standard deduction" instead. The nightmare storm of forms seanmpuckett describes is real but has never hit very many people.

Until the last tax cycle, almost everyone got a little money back from the process, because the PAYE component is typically pretty close to worst-case. The tax changes last year increased a lot of people's tax bills by thousands of dollars, so the assumptions under a lot of people's PAYE calculations were just wrong for a lot of the year, especially if they'd been using the clumsy available tools to game their PAYE. This meant a fair number of people had to write checks to the feds.
posted by GCU Sweet and Full of Grace at 6:07 AM on October 7, 2019 [2 favorites]

So the rich are audited less, but the rich also hire the more competent tax experts to exploit all the loopholes. So it would be interesting to see if auditing them brings or costs more on average.
posted by asra at 6:13 AM on October 7, 2019

"In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread."
posted by SoberHighland at 6:18 AM on October 7, 2019 [17 favorites]

Well this explains a lot, sadly. (Been audited literally every year since Trump took office)
posted by corb at 6:22 AM on October 7, 2019 [2 favorites]

Presumably to the same place whatever remaining actual grownups in DC went when they departed, since there don't seem to be any left there now.

Oh, these people are grownups - they're just sociopaths.
posted by ryanshepard at 6:37 AM on October 7, 2019 [4 favorites]

soundguy99: One of the related articles from ProPublica is this one: Senators Urge IRS to Focus on Big-Time Tax Cheats, and after reading that I'm wondering if there's any legal reasons the IRS can't just. . . decide not to audit anyone below a certain income? Or reallocate resources to focus more on higher income cheats?

The article touches on that, and I included it as an extended pull-quote below the break. In short, auditing low-income people is easy, can be done via mail and overseen by junior staff, where auditing the rich requires more skilled, senior staff, who in addition to costing more in salaries, have a high burn-out rate (and probably a high rate of leaving for more lucrative opportunities as consultants to the wealthy on ways to minimize their taxes, but that's just my speculation).

But as I also referenced below the break, CBO's calculations are that increasing funding for auditing would reduce the deficit, and from what I understand of that article, it's not assuming there are any new taxes applied. In other words, by just making people pay the taxes they owe under the current tax structure, we'll get more money. Now new taxes, just make sure people who owe money pay it.

If this were a (non-white collar) crime issue*, the pitch would be "if we had more cops, we could stop more crime," to which legislators often say "let's pay for more cops, and more training, and maybe even raise their salaries!"

But because this is not treated as a crime (or is seen as white-collar crime, which has seen a decrease in prosecution since the 1990s - Think Progress, 2015), it's not a priority for increased funding. Or major donors to politicians and political parties are have indicated that an increase in auditing would mean a decrease in donations, but that's pure speculation on my behalf.
posted by filthy light thief at 7:16 AM on October 7, 2019 [6 favorites]

It's worth noting that one of the implicit promises of civil service is job stability. As such, when budgets are cut it is often the goal of those who have to manage with the new lower funding level to reconcile the cuts through the attrition process. Positions of the people who leave are not filled so that those who remain can keep their jobs. As such, continuous steady cuts over time, in combination with high skilled job turn-over will leave a department with an unbalanced staff with proportionally too many junior staffers.

This is a predictable outcome.

And, asking the junior staffers to do work they aren't qualified for would only result in many more failed audits and a much more miserable work environment, while decreasing total revenues recovered (a metric you know everyone keeps an eagle eye on). The only solution is a return to appropriate funding by some mechanism.
posted by meinvt at 7:24 AM on October 7, 2019 [8 favorites]

I'm in the UK and ran a small limited company (contract programmer).
My tax returns were audited four years in a row, and when I asked why, I was told that they have to audit a certain minimum of companies per year and they always chose the small ones whose books were best kept as it made their job so much easier.
In other words, just a box ticking exercise.
posted by Burn_IT at 7:47 AM on October 7, 2019 [7 favorites]

"In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread."

And when the rich do steal bread, beg in the street, or sleep under bridges, well that was just "boys being boys", it was all "a joke", they are people "with a bright future", and it would be a shame to tarnish such remorseful lads with any form of significant punishment. (/hamburger)
posted by fings at 7:54 AM on October 7, 2019 [16 favorites]

To tack onto earlier comments. I don’t volunteer to pay extra taxes because the government isn’t a fucking charity. Rather it’s a shared obligation that all citizens should participate in.

I wouldn’t do my roommate’s dirty dishes for them, why should I volunteer to pay their telephone bill, too?
posted by Big Al 8000 at 9:10 AM on October 7, 2019

My taxes were cut in half this last year. About 1/3 was due to a one-time loss declared in the S-Corp I own shares in, the remainder was due to the tax cuts. I can tell you I needed exactly $0 of that back to maintain my lifestyle but I was able to put more money into non-retirement investment accounts.

I become marginally richer with very little direct benefit to the overall economy and exploding government debt that greatly threatens future generations ability to enjoy the peace and prosperity I have enjoyed to this point. So, yay me?
posted by Big Al 8000 at 9:16 AM on October 7, 2019 [1 favorite]

Another justification to increase taxes on the wealthy, particularly the ultra-wealthy: the distance created by wealth differentials that seems to break the natural flow of human kindness (Wired, "Why Are Rich People So Mean?")

Trickle-down justifications are a lie, and increased wealth differentials make the wealthy less empathetic or sympathetic to their fellow humans.
posted by filthy light thief at 9:41 AM on October 7, 2019 [9 favorites]

The article touches on that, and I included it as an extended pull-quote below the break. In short, auditing low-income people is easy, can be done via mail and overseen by junior staff, where auditing the rich requires more skilled, senior staff, who in addition to costing more in salaries

Yeah I read and understood that - my question is if there's a rule or regulations or laws that prevent the IRS from focusing their efforts on higher-income people.
posted by soundguy99 at 9:44 AM on October 7, 2019

Another justification to increase taxes on the wealthy, particularly the ultra-wealthy: the distance created by wealth differentials that seems to break the natural flow of human kindness

Despite my position of comfort snd privilege there is less space between me and the entire bottom 50% then between me and a few percentage points above. The hoarded wealth at the top is obscene in all senses of the word. If money is power then we live in a monarchy - we either take it back or make it useless.
posted by The Whelk at 9:52 AM on October 7, 2019 [15 favorites]

Ugh, I have many feelings about this subject. (More than usual, praemunire???)

It's actually very difficult for underfunded public servants to take on those with more resources to fight these battles. The next time you ask why your state AG hasn't gone after so-and-so, I refer you to your state budget. A handful of government lawyers will routinely be going up against a squadron of private lawyers, who also have the commensurate support structure. This is true, though less extreme, even at the federal level. The agency that was most aggressive in going after the banks after 2007--the FHFA, the conservator for Fannie and Freddie--got shit done almost solely because the statute creating the FHFA allowed it to retain external counsel rather than going through DOJ (as ordinarily it would've had to do), and the FHFA hired a big private firm that had a fair amount of plaintiff's-side experience to bring the noise (billions in settlements). All the states had to band together to get some money. DOJ had to be shamed into even trying. These constraints are very, very, very real.

On the other hand, YOU DON'T NORMALIZE THIS. YOU DON'T MAKE IT THE EXPLICIT BASIS OF POLICY.

Jesus Christ.
posted by praemunire at 9:58 AM on October 7, 2019 [11 favorites]

I think that if the rich are able to pay experts to complicate their holdings so much that no one can audit it, the first step is to drastically reduce the number of loopholes. Make it simple, and anyone filing anything super complicated is heavily incentivized not to do that.

It’s like a personal too big to fail ... I have such elaborate business dealings that no one can audit me. Limit each person’s business investments per year to say, 3. Let’s actively discourage people from trying to build empires.
posted by freecellwizard at 3:33 PM on October 7, 2019 [3 favorites]

American Bastille
posted by Fupped Duck at 3:35 PM on October 7, 2019

my question is if there's a rule or regulations or laws that prevent the IRS from focusing their efforts on higher-income people.

No.
posted by ultraviolet catastrophe at 5:43 PM on October 7, 2019 [1 favorite]

By rule? No. By design? Yes.
posted by avalonian at 6:39 PM on October 7, 2019 [2 favorites]

Tax accountant/lawyer - late to the commentary as usual as I am tidying up tax returns. I prepare returns for Australia, Canada, UK, New Zealand, US, Singapore - call them developed world.

A month ago, I hired someone to join MY (ie. really small) ACCOUNTING practice in Australia. As they are not Australian, I explained that taxation has the curse of being EXCEPTIONALLY jurisdictional, but that with a bit of care and curiosity, they might actually gain a few skills applicable on a wider scale.

Last week I spoke to a student studying Economics/Law, and both faculties are considering NOT offering taxation law as a subject as there is limited interest in the subject and NO-ONE who is qualified, is willing to teach.

A few years ago, the Commissioner of Taxation of Australia made a paraphrased comment, "Taxation is so complicated that most people do not do their own taxes, instead relying on professional tax advisors, so it does not really matter how complicated we make it, as the professionals are the ones who need to deal with it." I was waiting for pitchforks and torches as the protests swelled at the arrogance. I was disappointed.

Historically, the usual reason income tax was introduced was to pay for wars. Or for the costs of recovering from wars. The socialist movement encouraged a move away from rewarding the "deserving" poor, to providing a base level of support for the entire population funded by taxation. Taxation rather than philanthropy.

The rich prefer philanthropy - it gives them naming rights.
posted by Barbara Spitzer at 12:51 AM on October 8, 2019 [5 favorites]

> The rich prefer philanthropy - it gives them naming rights.

Well, yes, but this is only for bragging rights to their peers.

The actual reason they prefer philanthropy is because they can choose what to fund, and more importantly, what not to fund. Taxes are much more difficult (but not impossible!) to control on a line-item basis.
posted by seanmpuckett at 8:27 AM on October 8, 2019 [4 favorites]

Felix Salmon has often wrote about such things like giving to the Central Park Conservatory. It is a tax write off, it gives you social status and because you live across the street from the park it is effectively helping you get to enjoy the benefits of your gift.
posted by mmascolino at 9:41 AM on October 8, 2019 [2 favorites]

The regressive tax system, the top 400 earners pay less tax then any other group
posted by The Whelk at 7:28 AM on October 12, 2019