You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

Make the IRS Great Again

Democrats could fund their ambitious policies if the agency enforced tax laws fairly, rather than targeting the poor more than the rich.

Alex Wong/Getty Images

The story of human government is largely the story of tax collection. One of the oldest written records, a 6,000-year-old clay tablet found in the Mesopotamian city of Lagash, captures a citizen’s dread about the heavy financial levies imposed upon them. “You can have a lord, you can have a king, but the man to fear is the tax collector,” they fretted. More recently, the British government’s imposition of taxes on the American colonies were a driving force in the rebellion that yielded the United States.

Millions of Americans still fear the tax collector today. The wealthiest ones do not. By one estimate, more than one-fifth of the nation’s hidden income comes from the wealthiest 0.5 percent of Americans alone. A common conservative refrain whenever Democratic presidential candidates propose new sources of revenue to pay for healthcare or education program is that rich people will simply find ways to avoid paying it. As Republican lawmakers have also slashed the IRS’s budget over the past decade, the prophecy is effectively self-fulfilling.

It may be politically uncomfortable for the Democratic candidates to stand up for the Internal Revenue Service and its enforcement of the nation’s tax laws. After all, the IRS consistently ranks among the least popular federal agencies. But they’ll have to do so for the rest of their agenda to work. Now may also be the best time to make such a case to the American people: Not only is it good policy, it may finally be good politics.

IRS enforcement may not sound like a sexy issue on the campaign trail. That doesn’t make it any less important. Large portions of Elizabeth Warren’s policy platform, for example, hinge on her proposed wealth tax. It would impose a 2 percent annual tax on taxpayers with assets above $50 million, which would tick up to 3 percent for assets over $1 billion. In political terms, it’s a canny idea. Journalists and voters inevitably ask candidates how they would pay for their most ambitious policy items. The wealth tax’s projected revenue stream—$2.75 trillion over the next decade, according to her campaign—gives Warren a ready-made answer to those questions.

Some economists have questioned, however, whether Warren’s wealth tax would actually bring in the revenue that she expects, because wealthy Americans are so good at evading taxes. Emmanuel Saez and Gabriel Zucman, the UC Berkeley economists who first outlined the wealth tax proposal adopted by Warren, told The Washington Post this week that they factored in a 15 percent avoidance rate to reach the $2.75 trillion figure. In a Post op-ed last month, former Treasury Secretary Larry Summers and University of Pennsylvania professor Natasha Sarin argued that rich families would inevitably find ways to game the system.

Their most optimistic estimates for what the proposed tax would yield fell significantly short of Warren’s estimates for one simple reason. “We suspect that to a great extent it reflects the myriad ways wealthy people avoid paying estate taxes that in some form will be applicable in any actually legislated wealth tax,” Summers and Sarin wrote. Fully implementing the wealth tax would “require vast audit resources at a time when the IRS is unable to audit even 10 percent of millionaires”—resources that the agency is being starved of.

Just how bad is the enforcement problem? An investigation by ProPublica’s Paul Kiel and Jesse Eisinger published last December gives a striking rundown of the agency’s decline. Since 2010, the IRS’s budget slid from $14 billion to $12 billion. The number of IRS auditors has declined by one-third since that same year, resulting in a drop of 42 percent in audits overall. In 2011, IRS investigators probed 2.3 million instances where people didn’t file tax returns at all. In 2017, that figure fell to just 362,000. “In 2010, $482 million in tax debts lapsed,” Kiel and Eisinger wrote. “By 2017, according to internal IRS collection reports, that figure had risen to $8.3 billion, 17 times as much as in 2010.”

Who benefits from this? Not ordinary Americans. ProPublica found that the audit rate for those who make less than $20,000 a year and those who make between $200,000 and $500,000 a year is now equal. In April, the news organization reported that the most heavily audited county in the United States isn’t one that includes the swanky mansions of Beverly Hills or the high-rise penthouses of Midtown Manhattan. It’s Humphreys County, a rural stretch of the Black Belt in Mississippi where 70 percent of the residents are African American and 40 percent live below the poverty line.

As usual, the biggest winners from a hamstrung IRS are wealthy Americans and cash-flush corporations. Their efforts torpedoed an IRS unit dedicated to pursuing the richest of the rich while everyone else still felt the agency’s eyes upon them. Last May, Kiel and Eisinger wrote that audits are more common for poorer Americans than richer ones because they’re easier to conduct. “Wages are reported straight to the IRS, and computers can easily check that tax returns accurately report that income,” they explained. “This means that inadequate enforcement of the tax laws necessarily has a regressive effect, liberating those at the top from scrutiny while the masses continue to be tracked by machines.”

Under Trump and Treasury Secretary Steven Mnuchin, who oversees the IRS, the wealthy have been even less scrutinized. The Wall Street Journal reported earlier this week that in fiscal 2018, audits of the richest household—those making $10 million or more—“dropped to their lowest levels since the IRS began reporting that data in 2008,” falling from over 14 percent in 2017 to just 6.66 percent.

This imbalance is partly by design. The IRS’s decline can be traced back to Newt Gingrich and the Republicans’ 1994 takeover of Congress, but things got even worse after the 2010 midterms. The Tea Party movement swept a wave of candidates into power who were hostile to the agency’s mission. Reports in 2013 that IRS officials used government resources to target conservative non-profit organizations for audits also sparked controversy and investigations. The Treasury Department’s inspector general concluded in 2017 that liberal and progressive organizations had also been targeted in a non-partisan manner, but by then the political damage had been done.

What’s changed since then? President Donald Trump’s history of skirting his tax obligations makes the stakes clearer. In the 1980s and 1990s, Trump used what The New York Times described as “dubious tax schemes” to transfer at least $413 million from his parents to himself and his other family members, avoiding hundreds of millions of dollars in inheritance tax penalties when the elder Trumps died. Around the same time period, he declared similarly large losses in his federal tax returns from failing business ventures and reaped sizable tax breaks.

Information about Trump’s tax affairs after 1995 is scant at best, and the president is waging a multi-front legal war to keep his records out of Congress’s hands. It’s possible that he engaged in similarly creative accounting measures in recent years as well. During one of the presidential debates in 2016, Hillary Clinton suggested that Trump may not be paying income taxes at all. He did not deny the allegation. “That makes me smart,” Trump quickly replied. That quip alone reads like a manifesto for stronger IRS auditing measures for wealthy Americans.

Other familiar cases can remind Americans that the wealthy are cheating the tax system. Paul Manafort, his former campaign chairman, is serving a seven-and-a-half-year sentence after a Virginia jury convicted him for tax and bank fraud last August. Jurors learned during the trial how Manafort illegally funneled tens of millions of dollars into the U.S. from his consulting work in Ukraine, lavishly spending it on ostrich-skin jackets, exquisite Persian rugs, and sumptuous residences across Virginia and New York. Michael Cohen, Trump’s longtime personal attorney, pleaded guilty to hiding millions in illicit income last summer.

Not every wealthy tax cheat has to fear that Robert Mueller will uncover their sins, but many of them should experience the next best thing. Rallying voters around stricter tax enforcement might sound quixotic. But the Manafort and Cohen sagas show how some Americans still relish seeing the richest among us treated like everyone else would be. The ongoing college admissions scandal, where well-heeled parents bribed their kids’ way into top universities, demonstrates how cathartic it can be when those who believed themselves above the law are brought to justice. Rich Americans, just like the Mesopotamians before them, should fear the tax collector, too.