And now for today’s thought exercise.
Imagine you are a member of Congress. Recent assessments from the nonpartisan Congressional Budget Office (CBO) warn that the budget deficit for fiscal year 2018, which ended on Sept. 30, jumped to $779 billion and annual trillion-dollar shortfalls will return beginning in FY 2020. But then you learn of a miraculous budget formula that magically turns each additional dollar Uncle Sam spends into five or even 10 dollars in new revenue. You further discover that this formula is perfectly legal, completely fool-proof, and 100 percent guaranteed to slash federal budget deficits.
So, do you use it?
If you’re a GOP member of Congress, the answer is no. The reason for that mind-bogglingly stupid refusal is no mystery. As it turns out, that “magic formula” is simply to increase the enforcement budget for the Internal Revenue Service (IRS). But that very real solution to cracking down on tax fraud, evasion, and cheating would largely impact the rich. And after spending large parts of the past two decades cutting taxes for the wealthy and gutting the IRS, Republicans aren’t about to turn on their donor base: the haves and the have-mores.
A special report (“How the IRS Was Gutted”) jointly produced this week by The Atlantic and ProPublica shed light on the second prong of the GOP’s giveaway to the gilded class. “An eight-year campaign to slash the agency’s budget has left it understaffed, hamstrung and operating with archaic equipment,” authors Paul Kiel and Jesse Eisenger revealed. “The result: billions less to fund the government,” they warned, adding “that’s good news for corporations and the wealthy.”
Republicans on Capitol Hill have waged a successful 8 year campaign to gut the IRS budget.
Had the billions in budget reductions occurred all at once, with tens of thousands of auditors, collectors and customer service representatives streaming out of government buildings in a single day, the collapse of the IRS might have gotten more attention. But there have been no mass layoffs or dramatic announcements. Instead, it’s taken eight years to bring the agency that funds the government this low. Over time, the IRS has slowly transformed, one employee departure at a time.
The result is a bureaucracy on life support and tens of billions in lost government revenue.
For Republicans, this dysfunction is a feature, not a bug, the intended result of conservative public policy and right-wing propaganda. After all, for decades Republicans and the conservative commentariat have insisted Americans shouldn’t even try to collect taxes from the richest among them. In 2004, President George W. Bush declared, “The really rich people figure out how to dodge taxes anyway.” Defending GOP presidential nominee Mitt Romney eight years later, Sen. Lindsey Graham put it this way:
“It's a game we play. Every American tries to find the way to get the most deductions they can. I see nothing wrong with playing the game because we set it up to be a game.”
In 2009, supply-side snake oil salesman Arthur Laffer explained that only some Americans get to play the game. “You really can't collect much money from upper-income people,” Laffer sneered, “They know how to get around taxes.”
Especially if no one is trying to enforce the rules of the game. And as the New York Times documented just one day before its exclusive on the Trump family tax scams, crippling the enforcement of America’s tax laws is precisely what Republicans have been trying to achieve for almost a decade.
How can it be that the Trump family’s “maneuvers met with little resistance from the Internal Revenue Service”? How were Donald Trump associates like Paul Manafort and Michael Cohen “able to cheat the Internal Revenue Service for so many years”?
The I.R.S. pursues fewer cases of tax evasion than it did less than 10 years ago. Provided you’re not a close associate of President Trump, there may never be a better time to be a tax cheat.
Last year, the I.R.S.’s criminal division brought 795 cases in which tax fraud was the primary crime, a decline of almost a quarter since 2010. “That is a startling number,” Don Fort, the chief of criminal investigations for the I.R.S., acknowledged at a New York University tax conference in June.
Those draconian GOP budget cuts have impaired the ability of Uncle Sam to collect tax revenue owed.
As Jesse Eisinger and Paul Kiel also documented in the Times two months ago, “Starting in 2011, Republicans in Congress repeatedly cut the I.R.S.’s budget, forcing the agency to reduce its enforcement staff by a third.” In addition to recovering lost revenue, Fort explained, tax fraud cases brought by the IRS are needed to “influence taxpayer behavior for the hundreds of millions of American citizens filing tax returns.” With the steep drop-off in such cases, the authors cautioned, “experts fear [that] Americans will get the message that it’s all right to break the law.”
That’s a message the best and brightest of the Republican Party have been sending without interruption for more than two decades.
As David Cay Johnston explained in his 2003 classic, Perfectly Legal, the GOP during the Clinton administration waged an all-out war on the IRS, turning the priorities for auditing Americans upside-down. Then as now, GOP spinmeister Frank Luntz framed the issue for his Republican allies: "Which would you prefer: having your wallet or purse stolen, or being audited by the IRS?" As Sen. William Roth's Finance Committee held hearings in 1997 and 1998, Mississippi's Trent Lott decried the IRS' "Gestapo-like tactics" while Alaska's Frank Murkowski protested, "You don't need to send in armed personnel in flak jackets." Former Sen. Don Nickles of Oklahoma simply raged, "The IRS is out of control!" Congress went on to pass and Bill Clinton to sign the IRS Reform and Restructuring Act in 1998.
Even as then-IRS director Charles Rossotti warned Congress about a growing epidemic of tax cheating, Sen. Phil Gramm in May 1998 denounced the agency. Peddling myths of jack-booted IRS agents tormenting American taxpayers, Gramm called on Rossotti to fire his 50 worst employees. Gramm concluded:
I have no confidence in the Internal Revenue Service of this country. You do not have a good system. This agency has too much unchecked power.
As the New York Times recounted that spring, the plan to gut the IRS advocated by Phil Gramm and his allies was a popular political gambit, but almost certain to create incentives for tax evasion:
Mr. Gramm spoke at length of how he had ''no confidence'' in the I.R.S., remarks that were in sharp contrast to those of every other senator, who emphasized that the majority of I.R.S. workers were honest and most taxpayers law-abiding. A variety of tax experts have said in recent weeks that attacks on the I.R.S., which polls show are a potent device to win votes and contributions for Republicans, give comfort to tax cheats and discourage honest taxpayers.
Which, of course, is exactly what happened. IRS staffing was slashed and audits of the wealthy dropped precipitously. As Johnston explained, “In 1999, for the first time, the poor were more likely than the rich to have their tax returns audited.”
But despite all the GOP theatrics of 1998 and the 97-0 Senate vote on the reform bill it produced, it turned out that the Republicans’ claimed IRS outrages were a sham:
It was only afterward that the Government Accountability Office debunked the allegations of IRS abuses. “Generally, we found no corroborating evidence that the criminal investigations described at the hearing were retaliatory against the specific taxpayer,” the report stated. “In addition, we could not independently substantiate that IRS employees had vendettas against these taxpayers.”
By then it was too late. Reeling from the new law and the public attacks, IRS audits and collections tumbled to historic lows.
Nevertheless, the GOP message about the evils of the Internal Revenue Service were received loud and clear.
In 1998, then-IRS director Charles Rossotti warned Congress about an epidemic of tax cheating creating an estimated “tax gap” (that is, the difference between taxes owed to the federal government and revenue actually collected) of $195 billion a year. As I noted in 2014 (“The Pro-Tax Evasion, Pro-Deficits GOP Strikes Again”):
By 2006, as the New York Times reported, "Over the last five years, officials at both the I.R.S. and the Treasury have told Congress that cheating among the highest-income Americans is a major and growing problem." As former Reagan administration official Bruce Bartlett explained in 2012, "As the I.R.S. data show, noncompliance increased between 2001 and 2006, a period in which a substantial number of tax cuts were enacted." All told, according to the IRS estimates, the tax gap for 2006--that is, revenue lost to evasion, fraud and underreporting--reached $385 billion. That's $95 billion more than in 2001 and almost double the $195 billion Rossotti warned Congress about in 1998.
The “tax gap” keeps growing as IRS enforcement wanes. By 2017, it would extrapolate to $667 billion.
By fiscal year 2006, the net tax gap had risen to $385 billion. A 2016 IRS study found that on average, the net tax gap for fiscal years 2008, 2009, and 2010 rose to $406 billion. From 2006 to 2010, the total tax gap (that is, missing revenue before enforcement actions) had hardly changed (rising only from $450 to $456 billion annually). But the drop-off in revenue recovered by the IRA from those non-reporting, underreporting, or otherwise misrepresenting their income (down from $65 billion to just $52 billion) made that the net tax gap larger. And this was before the draconian budget cuts the new Republican House majority put in place beginning in 2011. With the IRS repeatedly telling Congress it can recover between $6 and $10 for every additional dollar added to its enforcement budget, Ezra Klein concluded back in 2011:
“Converting dollar bills into $10 bills is an excellent way to pay off your credit card. Except, it seems, if you're a House Republican.”
You read that right. This month, CBO estimated that each extra dollar allocated to the IRS for enforcement would yield a return on investment of 2.5 times. But in 2013, Treasury Secretary Jack Lew estimated that “for every dollar we spend on our enforcement initiatives, we expect to collect six dollars in revenue.” That view was backed by Commissioner John Koskinen, who told Congress "If you gave us the $500 million of our sequester funds (slashed under automatic spending cuts) we would have given you back $2 to $3 billion more, and people shrug and move on.” An analysis from Citizens for Tax Justice in spring 2013 put it this way:
Let’s start with the facts. Every dollar invested in the IRS’s enforcement, modernization and management system reduces the federal budget deficit by $200. Here’s another metric. Every dollar the IRS “spends for audits, liens and seizing property from tax cheats” garners ten dollars back. Can you say “return on investment?”
For America’s gilded class, the result has been the equivalent of a “Get Out of Jail Free” card. IRS audits have dropped by 42 percent since the budget cuts started, with criminal referrals down by almost one-half. And while the agency focused on higher income earners in 2009 (when the audit rate was 3 percent for those earning over $200,000 a year compared to around 1 percent under that level), Republicans have pushed the IRS to monitor lower-income households, especially those benefitting from the Earned Income Tax Credit (IRS).
Republicans continued to inflict rhetorical demagoguery and budgetary destruction on the agency after capturing the House in the 2010 midterms. (After a disgruntled taxpayer flew his single engine plane into the Austin IRS office, GOP stars like Iowa Rep. Steve King and Massachusetts Scott Brown remarked that “people are frustrated” and when “we abolish the IRS, it's going to be a happy day for America.”) But GOP pushback against President Obama’s crackdown on tax cheats using secret overseas bank accounts and the passage of the Affordable Care Act led to the beginning of eight straight years of uninterrupted budget cuts for Uncle Sam’s tax collector. (Maine Gov. Paul LePage denounced the IRS, the agency responsible for enforcing Obamacare’s individual insurance mandate, as “the new Gestapo” and warned it was “headed in the direction of killing a lot of people.”) But it was the supposed IRS “targeting” of conservative 501c4 “social welfare” groups that fueled the Republican frenzy to punish the America’s tax collector further. In July 2013, House Republicans even flirted with the slashing the IRS budget by $3 billion (or 25 percent) to just $9 billion. Others called for the impeachment of IRS Commissioner John Koskinen.
Ultimately, a 2017 report by the IRS Inspector General debunked GOP charges of bias against conservative political groups. As the New York Times reported that October:
A federal watchdog investigating whether the Internal Revenue Service unfairly targeted conservative political groups seeking tax-exempt status said that the agency also scrutinized organizations associated with liberal causes from 2004 to 2013.
Nevertheless, the damage was done. As Kevin Drum summed up the second half of the GOP’s “Cut and Gut” windfall: “Mission accomplished.” Extrapolating the last assessment of the tax gap to 2017 revenue levels, the chasm between what taxpayers owe and what the Uncle Sam collects would be a staggering $667 billion. (That would, by the way, erase the entire budget deficit for fiscal year 2017.) But as Drum points out using the charts above, the issue isn’t just the total loss of tax revenue, but who is pocketing those ill-gotten gains:
On the left, you can see that the IRS enforcement budget has been slashed since 2010. But it’s the chart on the right that shows exactly what effect that’s had. Poor folks have seen a small decline in audits of their little annual EITC payments, but that was always peanuts anyway. The real revenue-loser is in the green line, showing that audits of rich people have plummeted from 8 percent to 2.5 percent. If you’re rich, the odds of being audited has gone down by two-thirds over the past decade or so.
(It should be noted that the GOP’s draconian reductions to the IRS budget wrought havoc on customer service throughout 2014 and 2015. While much of that funding has been restored, the choking off of dollars to IRS enforcement has not let up, with dire implications for America’s ability to collect its taxes.)
But if the GOP can scratch “Gut the IRS” off its to-do list for the leisure class, Team Trump and its allies have already succeeded “bigly” in securing a tax cut payday for plutocrats.
As Vox reported in July, an analyses of tax code changes since 2001 revealed that “America’s getting $10 trillion in tax cuts, and 20% of them are going the richest 1%.” Looking at the combined impact of the Bush tax cuts of 2001 and 2003, the Obama stimulus cuts of 2009, payroll tax holiday of 2011-2, the end of the upper-income Bush tax cuts in 2013 and the Trump “Tax Cuts and Jobs Act” of 2017, the Institute on Taxation and Economic Policy (ITEP) “found that from 2001 through 2018, changes to the federal tax code have reduced revenue by $5.1 trillion.”
Sixty-five percent of the savings have gone to the richest fifth of Americans, with 22 percent of them going exclusively to the top 1 percent.
According to the institute’s estimates, by 2025 the tax cuts will grow to $10.6 trillion. Of that amount, almost $2 trillion will be received by the wealthiest 1 percent of Americans.
“If you look at the richest 1 percent, they’re getting more than the bottom 60 percent of Americans,” Steve Wamhoff, director of federal tax policy at the institute and one of the report’s authors, told me.
Those winnings for the wealthy are reflected in the chart at the top of this article. But what ITEP also discovered is how the tax cuts as a share of income for each quintile of taxpayers changed over time. For example, when most of the Bush tax cuts for upper income earners expired under President Obama, by 2015 the gains by the top 20 percent had dropped to 2.6 percent of their income. But with the passage of the Trump tax cuts in December 2017, the winnings were once again heavily weighted to the top:
The GOP’s “Tax Cuts and Jobs Act” boosted the payday for the top quintile of taxpayers since 2001.
By now, this should come as no surprise to anyone who’s been paying attention. By March, it was clear that Democrats’ warnings about the GOP Tax Cuts and Jobs Act—that it would do little to juice the economy, that the wealthy would pocket most of the benefits of the steep corporate tax cuts, that companies would plow their savings into stock buybacks and mergers and acquisitions—had all come to pass exactly as predicted. As David Gilson documented for Mother Jones, in 2018 the top 10 percent of earners would capture 52 percent of the benefits from the Trump tax cut. The top 0.1 percent of taxpayers would pocket a staggering 8 percent, roughly $193,000 on average.
Trump’s tax cuts meant big savings for the rich...
...with the top 1 percent of taxpayers capturing 52 percent of the benefits.
When he was running for president in 2000, then-Texas Gov. George W. Bush looked out over the audience at the Al Smith Dinner in New York. "This is an impressive crowd—the haves and the have-mores,” Bush guffawed, “Some people call you the elites; I call you my base." Dubya may have been joking, but he was also telling the truth. As for John Koskinen, the now-former IRS commissioner, he could only lament what had become of the agency he managed. Boasting his 22,000 employees represented “as good a workforce as I have ever worked with,” Koskinen warned Congress in 2013:
"I have not figured out either philosophically or psychologically why nobody seems to care whether we collect the revenue or not."
Like Bush, Commissioner Koskinen had a joke about the GOP base and the “Cut and Gut” strategy Republicans followed to reward it. The devastating budget reductions to the Internal Revenue Service, he quipped, were really “tax cuts for tax cheats.”
