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You Can’t Tax the Rich Without the IRS

You Can’t Tax the Rich Without the IRS

The hot policy in Democratic circles these days is raising taxes on the rich. Sen. Elizabeth Warren has a plan to tax “ultramillionaires,” as she calls them. Sen. Bernie Sanders wants to expand the estate tax. Rep. Alexandria Ocasio-Cortez has floated raising the top income tax rate to 70% for those making over $10 million a year.

But before this country raises taxes, it should grapple with something much more prosaic but equally important for tackling inequality: saving the Internal Revenue Service.

Already, wealthy people and corporations easily get around today’s rules. However tough any new laws might seem, they’d soon be undercut.

Slowly and quietly over the past eight years, the IRS has been eviscerated. It’s lost tens of thousands of employees. It has fewer auditors now than at any time since 1953. In real dollars, the agency’s budget has dropped by almost $3 billion since 2010.

Businesses and the wealthy benefit the most from this state of affairs. The largest corporations in America used to be audited every year. That started to change when the cuts began, and today, the audit rate has fallen by half. It’s a similar story for individuals making $10 million or more a year: With twice the chance of escaping IRS scrutiny, the ultrarich are much less likely to lose at the game of audit roulette.

Fixing the problem will require more than increasing the IRS’ budget (though that would certainly help). It’s about having the right personnel with the right skills. Today, the wealthy and corporations have the IRS outgunned. The ultra-affluent — with the help of legions of tax professionals — make domestic income disappear overseas or hide it in a pyramid of partnerships. It’s like trying to take on a modern army while armed with spears and clubs.

The IRS has difficulty tracing the income of the superwealthy or countering their sophisticated arguments about why what appears to be one type of income is actually something else. The agency has also trouble valuing their assets (a problem that, as The New York Times revealed, dates back at least to when Fred Trump was misleading the IRS about how much his buildings were worth). By the public admission of numerous IRS   officials, it has long done a poor job of scrutinizing complicated partnerships to understand who owns what portion of what stock.

 

Courtesy of propublica.org

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