November 18, 2021

To: Honorable Lindsey Graham

Ranking Member – Committee on the Budget United States Senate, Washington DC. 20510

Re: Estimated Revenue Effects of Increased Funding for the Internal Revenue Service in H.R. 5376, the Build Back Better Act

 

Dear Senator Graham: …..Every “… $1 increase in spending on the IRS’s enforcement activities results in $5 to $9 of increased revenues.”

From: Phillip L. Swagel Director,

Congressional Budget Office

 

I wrote about this issue two years ago, expressing my dismay and frustration about congressional misbehavior. Here we go again, but worse.

One in six dollars owed the IRS are not being paid.[1]

An astonishing number of wealthy Americans do not pay the taxes they owe. What is also astonishing is that some members of Congress appear to have that as a goal. You will see their efforts play out over the next few weeks in the very scary debate about federal debt. You will hear a lot of talk about our government running out of money. These politicians will focus on cutting federal spending rather than collecting money owed but not paid by tax cheats. Cuts to Social Security and Medicaid/Medicare will be predicted unless we “balance the budget’ and “eliminate the deficit”. These statements are intentionally misleading.

According to Charles Rettig, the IRS Commissioner whose term expired two months ago, income lost due to lack of tax law enforcement amounts to around $1 trillion (with a “T”) each year.[2] Tax dodgers have caused two-thirds of our annual average deficit each year between 2010 and 2020!

It is easy to protect vital government programs. Just fund the IRS budget so they can hire people to catch the income tax cheaters. It has worked well in the past.

Our current financial mess has largely occurred because between 2010 until 2020 Congress cut the IRS law enforcement budget by $1.8 billion. As a result, audit staff was reduced significantly. Most of those eliminated positions were higher paid specialists from the divisions which focused on reviewing the tax returns of the wealthy.

The audit rate of Americans earning more than $5 million a year decreased from 16% in 2010 to 2% in 2019.[3] Those earning over $10 million had their audit rate drop from 21% in 2010 to 4% in 2019.[4] Corporations with assets between $250 million and $5 billion (with a “B’) had their audit rate reduced to 33% of what it was.[5]

Because their tax returns are simpler, the IRS audits the poorest families at five times the rate of higher earners.[6] Because Congress cut highly trained auditors positions, the loss of this talent resulted in only one out of a hundred millionaires being audited in 2022.[7] According to a May 29, 2020 report by the Treasury Inspector General, the Internal Revenue Service identified more than 879,415 known wealthy individuals who illegally did not file tax returns between 2014 and 2016. These individuals owed at least $46 billion in taxes. Because of the congressional budget cuts, no one is going after them.

According to the 2021 Congressional Budget Office report, every dollar invested annually in the IRS results in $5-$9 in increased tax collections.[8]

Failure to collect taxes at the federal level directly impacts North Carolina. This is how it works: 41 states (including North Carolina) use your individual federal tax return as a basis for calculating your state taxes. Every dollar of income tax not reported in federal taxes ($1 out of every $6 owed) reduces reported income on North Carolina state tax returns – the same $1 out of every $6 owed. And our state income goes down.

Because North Carolina depends on the IRS to catch cheaters and some members of Congress have handcuffed the IRS tax law enforcement, we lose three times — less money in the federal pot to pass along to us, increased federal debt, and less money collected in North Carolina state taxes that we could have spent on law enforcement, education, health and general welfare.

With fair tax law enforcement, the taxes paid by honest people would not rise. The only new taxes collected would be from people breaking the law.

On Monday, Jan. 9, Republican members of the U.S. House of Representatives voted once again to cut from the IRS budget $71 billion specifically aimed at catching tax cheaters, claiming fiscal responsibility by “lowering the deficit spending”.[9]

To be clear, I am a fiscal conservative. I also do not like liars. These politicians should be held to the oath used in court: “Tell the truth, the whole truth, and nothing but the truth.”

I know this story is shocking, and you may be skeptical of some of the facts. If you go to my website www.theoptimisticfuturist you will find all the sources of those facts.

Francis Koster lives in Kannapolis and is a retired pediatric healthcare administrator who runs a not-for-profit organization called The Pollution Detectives.

 

[1] https://www.irs.gov/pub/irs-soi/p1415.pdf

[2] https://www.nytimes.com/2021/04/13/business/irs-tax-gap.html

[3] https://www.cnbc.com/2022/05/17/super-wealthy-irs-tax-audits-plunge-over-decade-government-report-says.html

[4] https://www.cnbc.com/2022/05/17/super-wealthy-irs-tax-audits-plunge-over-decade-government-report-says.html

[5]https://www.thetaxadviser.com/issues/2022/oct/newly-released-irs-data-book-numbers-confirm-decline-in-audit-rates.html

[6] https://trac.syr.edu/tracirs/latest/679/

[7] https://trac.syr.edu/reports/706/

[8] Page 3, https://www.cbo.gov/system/files/2021-11/57620-IRS.pdf

[9] https://www.washingtonpost.com/us-policy/2023/01/09/house-republicans-cut-irs/