When I was researching for a previous
diary, I came across a piece from Cassandra Butts of the Center for American Progress.
This was part of what she had to say:
The Bush administration's responsibility for furthering corporate tax avoidance also extends to its underfunding of tax enforcement at the Internal Revenue Service (IRS). In 2003, an underfunded IRS pursued only 18 percent of the abusive tax shelter cases uncovered by IRS agents. As recently as March 30 (2004), the IRS Oversight Board released a special report imploring Congress to go beyond the president's 2005 budget request of a 4.6 percent increase in funding for IRS and detailing what it identified as a consistent underfunding of tax enforcement activities during the Bush administration. Despite the 4.6 percent increase, the report found that IRS's enforcement capability would still continue to decrease for the fourth year in a row because the increase inexplicably ignored $230 million in expected cost increases related to pay raises and other required expenses. The report also found that the Bush budget for the IRS would lead to about a half-million unresolved delinquent tax cases and create a national tax gap of $311 billion or 65 percent of the projected 2004 budget deficit.
At the time this was a relatively new issue for me, but the suggestion that there was $311 billion in uncollected taxes stood out to me and I haven't stopped thinking about it since. So when Mr. Bush
said that rich people don't pay taxes, I began to wonder if there wasn't more to that story. Today, the Center for American Progress's
Progress Report had this:
TAXES
Letting the Cronies Off
Just one day after attending a church service where the topic was the excesses of wealth, President Bush joked about taxes, saying "the really rich people figure out how to dodge taxes anyway." The statement was a sharp departure from his past tough talk on tax enforcement. Just four months ago, the president claimed he wanted "to make sure that tax cheaters are found, make sure the IRS gets after those who don't pay taxes; make sure that the system is fair for those of us who do pay taxes. We want everybody paying their fair share." Unfortunately, though, yesterday's quip was far more indicative of the White House's record on taxes than the tough talk from before. The Bush administration has simultaneously reduced audits of the biggest corporations (many of which finance its political campaigns) while increasing scrutiny of indivduals. More specifically, that increased scrutiny has fallen on the working poor, even as high-income and corporate tax cheating increases.
CUTTING CORPORATE AUDITS AFTER CORPORATE SCANDALS: Even though major corporate scandals shook the economy's foundation, the Bush administration has reduced the number of audits Big Business faces. The New York Times reported earlier this year, "an independent analysis of new Internal Revenue Service data shows that tax enforcement has fallen steadily under President George W. Bush, with fewer audits, fewer penalties, fewer prosecutions and virtually no effort to prosecute corporate tax crimes." Specifically, the audit rate for the 11,200 largest corporations, which pay nearly all corporate income taxes, has fallen by almost half over the past decade, as has the audit rate for unincorporated businesses. The Washington Post reports in 2003, "only 0.73 percent of business tax returns were audited, down from 0.88 percent in the previous year."
RICHEST CORPORATIONS UNDER LESS SCRUTINY: The WP reports, "among corporations with assets of at least $250 million, audit rates slid to 28.98 percent last year from 33.68 percent in 2002. In 1995, more than half were audited." From 1999 to 2003, the number of civil negligence penalties aimed at corporations fell from 62 to 12. Civil fraud penalties dropped to 170 last year from 247 in 1999. And Bush's policies go further than lax enforcement - in some cases, it means forcing the IRS to settle cases on terms favorable to companies with shady behavior. The NYT reports a recent agreement between the government and a tech company "required the IRS to cooperate with the company...in keeping its shareholders uninformed on some basic terms of its stock-option plan, which an audit said enriched the four top executives by as much as $20 million in total."
TAX PROSECUTIONS ARE DOWN: CFO Magazine reports that, under the Bush administration, IRS prosecutions are way down. Specifically, "tax prosecutions resulting from IRS investigations are about half of what they were 10 years ago." Meanwhile, the number of civil suits filed by the IRS dropped from 2,172 in 1993 to just 575 in 2002.
BUSH SUBSTITUTES SHAM INDIVIDUAL AUDITS FOR REAL CORPORATE AUDITS: The St. Petersburg Times reports, "the Internal Revenue Service audited fewer corporations, small businesses and partnerships last year but more individual taxpayers." Syracuse University's Transactional Records Access Clearinghouse reports that the audit rate for businesses of all sizes slid slightly last year to 2.1 audits for every 1,000 businesses, from 2.2 audits per 1,000 businesses the previous year. At the same time, the IRS audited 14 percent more individual tax returns. But even that increase was suspect. The WP reports that increase was "entirely attributable to computer-generated letters automatically mailed when discrepancies are found between tax returns and income data." In fact, the rate of face-to-face audits of individual taxpayers has not changed in the past three years, remaining at a paltry 1.6 audits for every 1,000 returns.
IRS CALLS FOR MORE ENFORCEMENT FUNDS REJECTED: At the beginning of this year, the IRS indicated its desire to do more audits to reduce tax cheating. But the president's 2005 budget severely underfunds tax enforcement. As the IRS Oversight Board reported, the White House's proposal "not only threatens to end the clear progress made in customer service, it also does little to shrink our nation's tax compliance gap. It does not back up its goals on enforcement with the necessary resources to do the job." As an American Progress backgrounder notes, it was the fourth straight year the Bush administration refused to adequately fund tax enforcement. Not surprisingly, the IRS last week reported that it does not have the funds necessary "to collect some of the estimated $311 billion a year in unpaid taxes and to counter taxpayers' growing acceptance of cheating."
WHILE LETTING CORPORATIONS OFF, BUSH PUSHES AUDITS OF POOR: At the same time the administration is relaxing oversight of the major corporations which fund its campaign, it is increasing audits specifically of the working poor. As Gannett News Service reports, the administration has unveiled a plan "to conduct pre-certification audits for families claiming the Earned Income Tax Credit (EITC) and the proposed documentation for school lunches." The EITC goes to the working poor, meaning more families will have to produce "pay stubs, rent receipts and school transcripts" in order to qualify for the tax credit. Additionally, "Bush also wants parents who do not already receive food stamps or welfare benefits to provide income verification before their child can receive a free or reduced price school lunch."
POLICIES MEAN MORE TAX BURDEN FALLING ON AVERAGE AMERICANS: The NYT's David Cay Johnston notes "through explicit policies, as well as tax laws never reported in the news, Congress now literally takes money from those making $30,000 to $500,000 per year and funnels it in subtle ways to the super rich - the top 1/100th of 1 percent of Americans." He notes, "people making $60,000 paid a larger share of their 2001 income in federal income, Social Security and Medicare taxes than a family making $25 million, the latest Internal Revenue Service data show." The Bush administration's lax enforcement of corporate tax laws has been just one of the factors in that shift. The NYT reports, "new data show a continuing shift of tax burdens away from businesses and onto individuals. Last year, corporations paid 10.5 percent of all the taxes collected by the Internal Revenue Service, down from 16.4 percent in 1973."
Farther down they had a link to a recent WaPo piece that said this:
"The centerpiece provision of the sweeping corporate tax cuts steaming through Congress would help only about 1.1 percent of the nation's 2.2 million corporations, leaving some of the most troubled domestic manufacturers with no benefit at all, according to an analysis by the nonpartisan staff of Congress's Joint Committee on Taxation." The bill, which gives top corporations $63.3 billion in tax cuts, is going to top companies in no need of government help: "The 500 companies that would reap the majority of the benefit have projected estimated manufacturing income of more than $4.5 trillion in 2005 alone, an average of $9 billion in profit each." The findings "confirm my worst fears," Sen. John D. Rockefeller IV (D-W. Va.) said in a letter sent to colleagues last night. "More than 95 percent of manufacturing corporations -- the presumed targeted beneficiaries of the provision -- receive either no benefit or less than $50,000 of benefit."
As usual, I stand in awe of what David Sirota and others like him at the Center for American Progress come up with, but I think they could sometimes organize it better or provide useful graphics. There are some relevant graphics in my previous diary here. But there is one thing I want to add that is not really addressed in the overwhelming piece I just cited. And that is the measures that companies go to to evade taxes. They hire an army of accountants and lawyers and pay out millions to avoid paying billions in taxes. Enron as an example (link):
We've known for a while that Enron managed to avoid paying taxes for four of the five years before it filed for bankruptcy. But it wasn't until last week, when the Joint Committee on Taxation released its 2,700 page report, that we were confronted with the gruesome details.
Enron got away with more than $2 billion in tax cheating, and virtually no one knew it. In large part that's because they don't have to report to the public or to their shareholders via SEC filings even a little bit of what they tell the IRS.
As a result, when the truth was finally revealed, it looks like a tale of two books. Somehow, despite claiming $2.3 billion in profit between 1996 and 1999, Enron also managed to report a $3 billion tax loss to the IRS.
Another reform, supported by all of the experts who testified at the committee's hearings this week, is further disclosure. The ever widening gap between the numbers reported to shareholders and to the taxman should be closed. (The difference between the two has grown from $92.5 billion in 1996 to $159 billion in 1998, according to a study by MIT professor George Plesko.) By handing much of the same information over to the SEC that they already prepare for the IRS (i.e. at virtually no cost) corporations would give investors and the public a clearer picture of what's going on and who is and isn't masking the true financial health of their operations by manipulating the tax code.
So Enron sought out the advice of a coterie of accountants, banks, and lawyers, who were only too happy to sell them expert advice on how to trick Uncle Sam (i.e. the rest of us). Enron paid $40.2 million to Bankers Trust (now part of Deutsche Bank), $16.3 million to Deloitte & Touche, and $12.7 million to Chase Manhattan for tax-shelter schemes. Influential Washington law firm Akin, Gump, Strauss, Hauer & Feld got $1 million for providing a letter approving a tax shelter.
The obvious implication here is that Enron couldn't have done this alone. As Sen. Chuck Grassley (R-Iowa), chairman of the Senate Finance committee put it, the report "reads like a conspiracy novel, with some of the nation's finest banks, accounting firms, and attorneys working together to prop up the biggest corporate farce of this century."
Now it doesn't take a business genius to figure out that if you can sell a service once you're going to try to sell it again. And it also doesn't take a genius to figure out that if corporations are supposed to be paying 35% of their income in earnings and instead they are paying 20% of their income in earnings, there's probably a good bit of tax sheltering going on.
How much did Enron actually pay in taxes?(link):
The Houston-based company paid no federal income tax at all from 1996 through 1999, $63.2 million in 2000 and nothing again in 2001.
We can and will balance our federal budget and still provide necessary services if we aggressively invest in our own army of accountants and lawyers and go after the big tax evaders. But if we keep George W. Bush in office the rich will continue to not pay their fair share.