Saturday, August 13, 2016

Protecting the Wealthy: Republicans, Trump, and the Assault on the IRS

To those who might be wondering why the Republican Party leaders are continuing to support Donald Trump as their presidential candidate as he does everything conceivable to lose the election and embarrass Republican politicians everywhere, Paul Krugman provides an interesting perspective.  Krugman titled his New York Times article Pieces of Silver, clearly suggesting betrayal on an extraordinary scale is taking place.

“By now, it’s obvious to everyone with open eyes that Donald Trump is an ignorant, wildly dishonest, erratic, immature, bullying egomaniac. On the other hand, he’s a terrible person. But despite some high-profile defections, most senior figures in the Republican Party — very much including Paul Ryan, the speaker of the House, and Mitch McConnell, the Senate majority leader — are still supporting him, threats of violence and all. Why?”

He suggests a few reasons why party leaders refuse to dump Trump.  The first is that they refuse to act like honorable people because they are, in fact, not honorable people.  He also suggests that they are afraid to act because they have always known what is only now becoming apparent to everyone else: the Republican Party’s success has been based on the promotion of white nationalism.  Repudiating Trump would be the same as repudiating the Party’s voter base.

Krugman chooses to focus on the Party leaders’ long-time role as enablers of the wealthy.

“But there’s a third answer, which can be summarized in one number: 34.”

“What’s that? It’s the Congressional Budget Office’s estimate of the average federal tax rate for the top 1 percent in 2013, the latest year available. And it’s up from just 28.2 in 2008, because President Obama allowed the high-end Bush tax cuts to expire and imposed new taxes to pay for a dramatic expansion of health coverage under the Affordable Care Act. Taxes on the really, really rich have gone up even more.”

If Clinton wins the election, the top tax rate is not going down, although, conceivably, it might go up.  If Trump wins the election, they will have the power to dramatically lower the taxes on their plutocrat rulers.

“So if you’re wealthy, or you’re someone who has built a career by reliably serving the interests of the wealthy, the choice is clear — as long as you don’t care too much about stuff like shunning racism, preserving democracy and freedom of religion, or for that matter avoiding nuclear war, Mr. Trump is your guy.”

This is betrayal at the Benedict Arnold level—if not greater.

“But whatever doubts they may be feeling don’t excuse their actions, and in fact make them even less forgivable. For the fact is that right now, when it matters, they have decided that lower tax rates on the rich are sufficient payment for betraying American ideals and putting the republic as we know it in danger.”

There is another act of betrayal taking place as Republican leaders continue their assault on one of our most important institutions, the Internal Revenue Service (IRS).  When one considers the level of dysfunction in our houses of Congress, comparisons with Greece come to mind.  However, there is one major difference that separates us from such a failing state: our citizens are generally willing to pay their taxes—so far.  The Republican-led congress has been cutting the IRS budget and has been trying to discredit its functionality in order both to support their small-government bias and to protect their wealthy allies from rigorous enforcement of tax laws.  Both approaches could have the dangerous consequence of convincing taxpayers that the system is rigged against them. “ If dishonesty is common, why should I be honest?”  And then we become Greece.

Martin Lobel provides some insight into what has been occurring in How Plutocrats Cripple the IRS.  This piece was published in The American Prospect.

“For every dollar appropriated to the Internal Revenue Service, the public collects more than $4 in taxes. Nonetheless, Congress has cut the IRS appropriations by $1.2 billion since 2010 while expanding the service’s administrative burdens by giving it responsibility for enforcing laws extraneous to tax collection, such as the Affordable Care Act.”

“Overall, the budget cuts reduced IRS staffing by 15 percent since 2010. That budget cut translated into a reduction of more than 2,200 revenue agents. The result: Tax fraud investigations plummeted by 43 percent for individuals and 58 percent for businesses. And that trend is accelerating. In 2014 alone, almost 1,000 enforcement personnel were lost, resulting in 11 percent fewer examinations in FY2014 than FY2013. And the IRS expects to lose between 2,000 and 3,000 employees this year. What makes it even worse is that many of those departing are experienced employees who will have to be replaced by inexperienced ones who won’t get sufficient training—budget cuts have forced an 85 percent cut in employee training.”

One way to diminish confidence in an institution is to render it inaccessible and unhelpful.

“Unfortunately, because of the 10 percent cut in IRS appropriations since 2010, there are fewer employees to respond. In 2015, only 38 percent of taxpayers could get through to the IRS on the phone. What does that do to a citizen’s respect for the IRS?”

“In response to pleas from seven former IRS commissioners, Congress did approve a $290 million increase in appropriations for customer service in FY2016, which should allow the hiring of up to 1,000 customer-service personnel. This should increase the number of calls answered this year from 38 percent to 60 percent, according to IRS Commissioner John Koskinen. Unfortunately, there was no increase in the IRS enforcement budget.”

Congress also directs the IRS to engage in dubious practices which seem to consist more of harassment than fiscally responsible behavior.

“For all taxpayers, the average risk of being audited in 2014 was just under 1 percent.  Interestingly, if you reported no adjusted gross income, the risk of being audited was 5.26 percent. Why? Because of Congress’s demand for more audits of Earned Income Tax Credit recipients—who are low-income earners.  Meanwhile, the audit percentage for those who reported between $500,000 and $1 million in adjusted gross income was 3.62 percent.”

And, of course, the wealthier one is, the greater the opportunity to benefit from a resource-poor IRS.

“Plutocrats, the richest 0.1 percent of Americans, get the most benefit from a weakened IRS. Because they have the money, the lawyers, the lobbyists, the accountants, and the secret campaign funds, they are able to ensure that the IRS won’t have the resources to effectively collect the money they owe to it. Plutocrats do this by devising tax shelters too complex for the IRS to challenge at an acceptable cost, and by having allies in Congress who intimidate the IRS from issuing tough regulations and who cut IRS funding to prevent adequate enforcement.”

“The IRS estimates that only about 1 percent of wages reported by employers to the government are underreported, but underreporting could be as high as 56 percent where there is no outside reporting of income to the IRS. That describes most of the income of the very rich, which comes from capital income and very complex financial plays designed to maximize profits and minimize taxes.”

The IRS does try to assess the tax returns of the very wealthy, but is hindered by its lack of support from Congress and by its lack of resources.

“At the very top, the audit figure did rise to 16.22 percent for those who reported adjusted gross income of over $10 million a year.”

“But many such investigations into plutocrats’ creative tax accounting were aborted because a great deal of sophisticated manpower is required to breach the walls hiding tax avoidance or evasion that are erected by the plutocrats’ army of financial advisers, lawyers, and accountants. A relatively simple example is a maneuver in which an investor swaps dividend-paying stocks with a bank, which lends the stocks to a third party in a country with a low tax on dividends. This transaction provides no economic benefit except to the lawyers, accountants, and bankers; its sole purpose is tax avoidance. The bank earns a fee for arranging the transaction, and the original owner still owns the stock but receives more money than he would have if he just held the stock and had to pay taxes on the dividend income. Everyone wins but the IRS—and the other taxpayers who have to make up the difference.”

“….such swaps generated about $259 million in fees for Bank of America alone in 2013.”

Lobel concludes with a sentiment quite similar to that expressed by Krugman.

“The media need to do a better job of informing the public of what is at stake and what needs to be done. Voters have to know who has been selling them out to the plutocrats so they can hold them accountable. Those politicians who have hidden behind the tax-cutting theology so as to feed off the plutocrats’ money have to understand that opposing an effective IRS and opposing real tax reform will result in lost elections. Otherwise, the shift of wealth to the top 0.1 percent, away from the middle class, will continue to undermine our economy.”

Lobel used this as his lede, but it serves equally well as a conclusion.

“You pay more because elites use their influence to pay less.”

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