When ProPublica came with an investigation revealing the tax returns of rich people, it was not terribly shocking. It’s been an open secret that billionaires are likely paying no to very little in taxes. As the investigation revealed, Jeff Bezos often paid no taxes through a lot of legal loopholes. But legal loopholes aren’t just the only reason why billionaires aren’t paying taxes.
The other reason why rich people aren’t paying taxes is that they don’t pay their taxes. Essentially, billionaires avoid paying taxes because frankly, no one going to get them in trouble if they don’t pay. For the past few years, the IRS has been defunded to the point where it can’t enforce tax laws, allowing rich people and corporations to break the law without being caught.
A Weakened System
Republicans have wanted to weaken the IRS for a long time. For example, while campaigned for the Republican presidential nomination, Ted Cruz called for ‘abolishing the IRS,’ former Republican Sen. Richard Lugar, in 1996, once ran on a platform of scrapping the IRS, and in 2017, Republicans tried to pass the Tax Code Termination Act, a law that would repeal the IRS code and force Congress to come up with a new one.
While Republicans never managed to abolish the IRS, they did manage to cut the IRS’ budget significantly. Adjusted for inflation, the IRS lost 20% of its funding from 2010 to 2018, causing the IRS to lose one-third of its employees from 2010. These things combined have completely weakened the system, causing less money to flow into the federal government.
Going Down
Because of the defunding of the IRS, there have been a lot fewer audits of rich people. While the auditing rate for all income levels has lowered, the audit rate of Americans making over $500,000 a year has decreased from 8% to 2.5%. The lower audit rate is due to how expensive it is to audit rich people. The IRS uses actual auditors, instead of machines for less wealthy Americans, to audit a wealthy person’s returns. Because of the cuts, the IRS lost a third of its auditors from 2010, meaning there are fewer auditors to audit rich Americans’ returns.
A lower audit rate for rich Americans probably encourages them, who are the most likely to avoid taxes, to avoid paying taxes because they’re not getting caught.
More Funding
Increasing funding to the IRS would make wealthy Americans ‘pay their fair share.’ But we can also see increased funding to the IRS as an ‘investment’ for the government.
It’s estimated that for every 1 dollar that goes into the IRS, the US government gets 6 dollars back. The government can then use that money to help fund other projects. In fact, the Biden administration floated the idea of increasing the IRS’ funding to pay for the infrastructure bill.
With more money and more power, the IRS could finally go after people who evade the system, and the government could help fund more projects to improve the country.