Why
Trump, Kushner & Co. take an unbusinesslike approach to balancing the books
By
Vic Simon
The Republicans are
about to slash the budget of the top money-making department of the U.S.
government, an agency that brings in $300 for every $1 it spends.
Despite returns on
investment that any CEO would die for, Republicans hate it. In seven years,
they have cut its budget seven times.
The Internal Revenue
Service was responsible for bringing in $93 out of every $100 the government
took in last year.
That’s $3.3 trillion
in revenues while spending just $11 billion on itself. According to an estimate
by the Committee for a Responsible Federal Budget, the IRS fails to collect
$600 billion a year in taxes, mainly because it doesn’t have the bodies to do
its job.
That’s $160 billion more than Trump’s projected
government deficit in 2018. And they aren’t new taxes either,
just taxes that are owed but not paid.
Talk about your low
hanging fruit.
Which is where First
Son-in-Law Jared Kushner comes into the picture. He has been assigned the task
of making the government more businesslike.
Every business must
keep revenue coming in the door. Starving the parts of the business that bring in
the bucks is as un-businesslike as you can get. Jared Kushner would be crazy to
nickel-and-dime IRS tax enforcement.
Treasury Secretary Steven Mnuchin, the IRS’ direct overseer, seemed to agree when he said at his confirmation hearing back in January that he was “surprised and concerned” to learn that the IRS workforce had been cut 30% since 2011.
Nevertheless, Trump,
Kushner, Mnuchin and budget chief Mich Mulvaney plan to cut the IRS more. Their
budget proposal would trim IRS enforcement money and people by 3.6% from 2017
to 2018.
Contact the Senate and
House Appropriations Committees, Financial Services and General Government
Subcommittees. They are now reviewing Trump’s Treasury Department budget
proposal with its cuts for IRS enforcement and taxpayer services.
Among the cuts: Slash
one out of seven IRS people who try to answer taxpayer questions and actually
collect the large majority of taxes. The strategy? Get people furious at the
lack of IRS customer service.
Maybe more to the
point for Trump, Kushner and Mnuchin is that they, like most corporations and
other wealthy Americans, have used many exotic tax strategies to keep millions
of dollars from the IRS.
The few
peeks we’ve had at Trump’s tax returns, for example, show that he is
especially adept at gaming the system.
So it’s not surprising
that Trump, Kushner & Co. would like to see that IRS enforcement money and
people are cut, resulting in even fewer audits of corporations and the wealthy.
In 2016, only one out of about 150 taxpayers was audited.
The biggest drop in audit rates has been for the highest
income taxpayers. Big companies also benefit. In 2011, nearly one in
five was audited. In 2016, it was about one in ten.
According to IRS
figures, it recovers $9.60 for every $1 spent on audits, collections and
property liens and seizures. A range of outside experts say the IRS
would recover $6 for every $1 additional enforcement dollar.
The Congressional
Budget Office modifies that by saying that IRS would have to re-develop its
enforcement capabilities with a bigger budget, so that the direct revenue gain
from an extra $1 billion spent would be $2 billion the first year, moving up to
$6.4 billion in the third and later years.
The IRS says there’s a
bigger, indirect effect from added enforcement—three times as large as the
higher direct collections: deterrence of people who would otherwise hide income
from their tax returns, or cheat on taxes in other ways.
David Kamin of New York University law school says
that not counting the deterrence effect “is like accounting for the effect of a
police department on bank robberies by measuring [only] the number of thieves
caught in the act or afterward.” To maximize deterrence, IRS initiatives would
have to be aggressive and well-publicized.
Look at the flip side.
What happens if IRS enforcement continues its six-year slide, as the Trump
budget proposes?
Revenue since the
first of the year is coming in much slower than expected, Treasury Department
data show, and the government may hit a wall and not be able to pay its
bills by September.
While there are all kinds of complicated and subtle explanations for this, the obvious explanation is that after so many years of IRS enforcement decline, lots of people think they don’t have to pay taxes, and IRS won’t find them.
While there are all kinds of complicated and subtle explanations for this, the obvious explanation is that after so many years of IRS enforcement decline, lots of people think they don’t have to pay taxes, and IRS won’t find them.
Vic Simon is a
business reporter for the Montgomery County (Md.) Sentinel.