Thursday, October 08, 2020

IRS is Outgunned

 We are outgunned 




Right Hand Man, in Hamilton

New York Times op-ed:  The I.R.S. Is Outgunned, by Natasha Sarin (Penn Law & Wharton):

The president of the United States paid less in federal taxes than all but the poorest Americans the year he was elected. This is in large part because he lost more money than nearly anybody else in this country for years, a troubling fact given his promise to “run America like his business.”

But the responsibility for his meager $750 tax bill does not lie with President Trump alone, nor with his tax advisers. Instead, the newest revelations put a very famous face on a problem that has long existed: The wealthy aren’t paying what they owe, and our tax system allows it.

This is not a new problem, but it is one that has gotten worse in the last decade, the result of a partisan attack on the I.R.S. that has deprived it of the resources it needs to police evasion aggressively. In the last decade, the I.R.S.’s budget has fallen (in real terms) by nearly 15 percent. Its enforcement budget has fallen 25 percent over this period, and its work force has been slashed by 20 percent.

These grim numbers do not even take into account the growth in the economy and the increasing complexity of tax returns. In fact, as a share of gross tax collections, the I.R.S. budget is down nearly 50 percent from its peak in 1993.

As my work with the former Treasury Secretary Lawrence Summers shows, the result of this underinvestment is that the I.R.S. today cannot administer tax laws effectively. Based on current trends, in the next decade the I.R.S. will fail to collect an estimated $7.5 trillion in owed tax. That “tax gap” corresponds to nearly 3 percent of G.D.P. annually.

The beneficiaries of a gutted I.R.S. are the elite. ...

 a robust attack on the tax gap will signal an end to our two-tiered tax system, where those with enough money are able to subvert the tax laws with little fear of repercussions. At a time when inequities in the criminal justice system are appropriately a cause of significant concern, those same inequities in tax administration deserve the attention of policymakers.

A quotation from Justice Oliver Wendell Holmes is etched on the wall at I.R.S. headquarters: “Taxes are what we pay for a civilized society.” President Trump is one insidious example of the wealthy not paying their fair share. We have to invest in tax compliance so they are forced to.

Whatever Liz Truss says about freeports today, their greatest benefit is to tax abusers and, worse still, organised crime

Posted on October 7 2020

Liz Truss is, apparently, out and about, promoting freeports today. I recently submitted a fairly lengthy comment to the Government’s consultation on the creation of new Freeport
Read the full article…

Adam Chodorow (Arizona State), How I’ll Teach Trump’s Tax Returns:

I’m always excited to find stories in the news that touch on the tax law and policy I study and teach. Usually in my classes, we might spend about 10 minutes on such an item before moving on to the day’s lesson. The New York Times’ recent revelations about President Donald Trump’s taxessupply enough material for an entire semester. While most people will view the fact that Trump paid almost nothing in income taxes over the past 15 years as a political matter—does this hurt or help him? Is he actually bad at business?—those of us who teach tax law see a treasure trove of policy questions highlighting the strengths and weaknesses of our current tax system. If I were to build a class around Trump’s taxes, here’s how I’d do it.

One top-line issue is whether Trump was entitled to claim a loss (and if so what kind of loss) when he abandoned his interest in his failing casino business—which ultimately formed the basis for a $72 million refund request to the Internal Revenue Service that is still pending. Taxpayers should be allowed to deduct economic losses they suffer if they have basis in the amounts lost. Generally speaking, this means that they have already paid tax on the money lost. This is why you can’t deduct a loss when a stock you own goes from $100 to $150 and then back down to $100. You never paid tax on the $50 of gain when the price rose, so you can’t deduct the $50 loss when it falls back again. Basis is a core tax concept, and one that students often struggle to grasp. ...

While much hay has been made of Trump’s returns and the fact that he has paid almost nothing in taxes over a long period, there is so much we don’t know that it is difficult to reach conclusions on whether he merely pushed the limits or in fact stepped over the line. Nonetheless, his efforts to harness the tax system for his own ends in so many creative ways shine a bright spotlight on the tax code, casting a number of different provisions and policy decisions in stark relief. And, yes, this will be on the exam