Biden Can Stop Sinister Trump Plan with One Phone Call -- Will He?
The Biden White House was unaware of this Trump tax favor—disguised as a crackdown on wealthy tax cheaters—when DCReport asked about it on Friday.
That’s not
surprising because the IRS remains under the control of Charles Rettig, a
holdover from the Trump era. Before Trump named him IRS commissioner, Rettig
was a Beverly Hills tax lawyer who helped the super-wealthy escape taxes and—if
they got caught cheating—negotiated secret settlements that avoided public
humiliation while minimizing taxes and penalties.
If Biden lets
this Trump policy take effect it would be a huge benefit to clients of Rettig’s
old law firm and others like it. And it would make an already unfair tax system
even more heavily tilted in favor of billionaires all through a clever excuse
for hiring less capable auditors.
IRS Minimizes
Internally the
IRS characterized the new favor for the rich as nothing more than a subtle
change to comply with arcane civil service policy. But at least one high-level
IRS manager saw through this façade and fought the plan, an email obtained
by DCReport shows.
What makes
this Trumpian scheme diabolical is that on the surface, it appears to be a 50%
increase in enforcement of gift and estate tax law, areas where cheating is
rampant. Actually, it’s the opposite.
Starting
Thursday, July 1, the IRS will hire 71 new people to examine estate and gift
tax returns.
The 137 IRS
tax lawyers who do this work now are, in effect, highly trained colonels on the
tax police force. They need sophisticated detective skills to understand the
mind-numbingly complex trusts and other devices that lawyers like Rettig
designed to hide money from the IRS.
Skills Downgrade
The new hires,
however, won’t be lawyers, only lightly trained tax specialists. They will be
equivalent of mere corporals on the tax police force, lacking the legal
education required to see through the fog of confusion that tax lawyers get
paid fat fees create so their clients can pay little to nothing in taxes.
Despite the
severe downgrading in required skills, the new hires will get the same pay and
benefits as the lawyers doing the work now. The new hires will also be eligible
for promotion and to move on to other jobs in the civil service, unlike the
existing auditors.
It makes no
sense to pay the same wages and benefits for reduced skills. On second thought,
that does make sense when the purpose is to create the appearance of increased
tax law enforcement while doing the opposite.
This stealth
plot to help the super-rich comes just days after DCReport revealed a nearly total collapse of audits of super
high-income Americans, those making on average $30 million each.
The IRS
audited just 38 of the 26,517 households in this rarified income stratum in
2018. Recommended additional taxes after audit fell 99.1% from 2010, my
analysis of new IRS data tables found.
Our new expose
comes after ProPublica and The New York Times published
separate reports showing how many of the wealthiest Americans pay little to no
taxes. DCReport revealed how this forces everyone
else to subsidize their lifestyles. All these reports dealt in part with weak
enforcement of the tax laws regarding the highest income and wealthiest
Americans.
Billions Become Pennies
Tax lawyers,
like Rettig before Trump put him in charge of the IRS, help clients reduce or
eliminate gift and estate taxes through a host of complicated legal devices.
They include intentionally defective grantor trusts, split-interest
arrangements, life insurance trusts and several dozen other techniques that
distort the time-value-of-money to shield dynastic wealth from taxes. Tax
lawyers like Rettig reduce billions of dollars to pennies.
These devices
enable dynastic wealth but at the price of inhibiting future economic growth
and make it harder for new generations of wealth creators to arise, as Warren Buffett told me in 2001. Economic oppression
from trying up wealth in trusts was a driving force in the bloody French
Revolution of 1789.
The gift and
estate tax laws are crucial backups to the income tax system, which Congress
was told as far back as 1924 by Representative
William R. Green, an Iowa Republican and longtime chairman of the
House Ways and Means Committee.
Detecting
these tax avoidance tricks and then figuring out how much tax is due requires
sophisticated skills, especially in understanding legal doctrines and court
decisions. The new hires are required to have only minimal training, none of it
in contract law.
So, while it
appears the IRS is beefing up its auditing power, it is simultaneously moving
to assign the work to employees less likely to detect cheating and much easier
to dupe. Imagine your local police department announcing it would no longer
hire homicide detectives but instead assign future murder cases to patrol cops.
IRS Executive Fought Plan
The existing
auditors are classified as “905” employees. The new hires will be classified as
“901” employees.
Karen L.
Sumler, the IRS executive who oversees the examination of gift and estate
taxes, fought against the downgrade.
“I pushed back
hard,” she wrote in a June 16 email to her subordinates. “I provided documents
from the decision back in 1967” to use attorneys to examine gift and estate tax
returns to try and stop the plan. She said the IRS chief counsel “was unmoved.”
After she lost
that battle Sumler fell in line, writing about “a big change” as “a new
opportunity.”
Because of
civil service rules, hiring lawyers as gift and estate tax examiners requires
approval from the Treasury Department general counsel.
Treasury refused
such permission when Trump was president. Biden or Treasury Secretary Janet
Yellen can order that policy rescinded, which would allow the IRS to hire 71
lawyers instead of ill-trained tax specialists at the same pay.
If Biden lets
this policy proceed, he is tacitly declaring that he supports Trump-era policy
to help the wealthiest Americans pay less tax. That would be a betrayal of his
campaign and White House promises to reduce unfairness in the tax system and
require those making more than $400,000 per year to pay more to support the
government which made their wealth and income possible.
Just stopping
the plan from taking effect would give the Biden administration time to
understand this scheme. The question is whether Biden will do what he promised
or reveal himself to just be another politician who tells voters what he thinks
they want to hear and then doesn’t act.
David Cay Johnston is the Editor-in-Chief of
DCReport. He is an investigative journalist and author, a specialist in
economics and tax issues, and winner of the 2001 Pulitzer Prize for Beat
Reporting.
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