Reading the actual study [1], the headline is a bit deceptive. The study looked at audits between 2000 and 2010, a period during which funding to the IRS increased, and found that generally more funding for audits led to more money recovered from audits (duh). But that $34.3B figure is over 10 years, so it's a tiny fraction of a percent of overall federal revenue, and it's not offset by the amount of more money the IRS would have taken to run those audits.
Also unmentioned is the very real negative externalities that IRS audits cause. Audits disproportionately affect poor people [2], who are also the least able to spend time dealing with them. The United States already has extremely low tax evasion rates [3]. Rather than spending money to catch more of the very few cheaters by audits, other country's tax authorities have found "nudge" letters were found to be similarly effective and vastly cheaper.
The GOP direction has been to break the IRS since the 90s. None of the administrations were willing or able to take a stand against it, and this administration is actively trying to break the executive branch overall.
A good friend was a specialist in a few tax evasion schemes used by real estate developers and a few other more obscure areas with similar methods. Basically, there were about 50 people nationally doing this in the early 90s, but the program was defunded over time and when he retired, there were 4. He spent about 60% of his time flying all over the country to testifying in court. Today there is nobody, the last guy retired last year.
By my friend's reckoning, his direct work accounted for $100M in recovered revenue per year. Some big cases were multiples of that. They have models that show the deterrent effect that enforcement has -- that $100M in recovery may deter $1B in undetected fraud. That is money being stolen from the treasury.
To be fair, large portions of the GOP (current presidents nothwithstanding) has also been advocating for simplified tax schemes that would make a smaller IRS more than capable enough for the job.
And yet some people manage to whip themselves in to a righteous frenzy over someone collecting welfare or immigrants getting a microscopic bit of state aid.
Such people really need to get a sense of proportion.
The destitute, despised, downtrodden guy who slaves away to support their family by mowing your lawn, picking apples for you, driving you somewhere, or serving you your burger is not your enemy.
Last week I saw a person on Facebook sharing an anecdote patterned after the "welfare queen" trope and arguing against food stamps.
I noticed from her Facebook page that she owned a ranching operation, so I searched her name in the EWG Farm Subsidy Database and saw that she and her husband had received $18k in subsidies in 2018, and nearly $250k since 1995.
IRS budget cuts seem to be thrown around a lot, but to me this is just a symptom of the real problem -- a tax code that is way too complex. Years of congress pandering to special interests, fixing minor issues with pages of new tax rules and no implementation accountability (implementation and enforcement is dumped on IRS) brought US tax code to a state that can overwhelm any staffing levels.
Simplifying tax code will go much further than trying to staff up IRS. My 2c.
The act of reducing the manpower of the IRS needed to enforce the laws may have a greater effect than all the tax cuts combined. If a business is fairly certain an audit isn't coming, their effective tax rate is whatever they want it to be.
Also important is what happens to a business that gets caught. If the punishment is 'pay back taxes plus a moderate penalty, and here we'll even set up a convenient payment plan for you', then cheating on taxes is effectively a free roll. You have a 95% chance of saving a ton of money, and 5% chance of paying only a bit more than you would have paid anyway if you followed the laws.
That said, the absurd complexity of the tax code is also a problem here, since you don't want the government doling out bankruptcy-inducing penalties on businesses that might just be making an honest mistake. The whole system clearly needs an overhaul. It should be simple enough that when a business severely underpays, it will be very likely that they did so on purpose, and therefore a large, deterrent-worthy penalty can be justified.
And I'd imagine that auditing high net-worth individuals and large companies takes a lot more people than smaller businesses. Larger companies will be able spend more on expensive legal advice fighting audits, and it will make business sense.
Oh, but it is worse. It teaches members of the class that exploit it that taxes are for everyone else. They spend time on efforts to avoid taxes, which not only "starve the beast", but are frankly non-productive while shifting the burden on to others.
It breeds sociopathy among the executive class that doesn't need any help in that department while encouraging nonproductive "investment".
Exactly, considering the penalties are just paying whatever is owed anyway, perhaps plus a few minor interest penalties. They make more the fines and interest combined by a long shot just by deploying the saved funds elsewhere.
From reading the comments, I really wonder how many HN Users are tax evaders. I see the top two comments are “the tax code is too complicated, we shouldn’t be going after tax evaders” and “this isn’t actually a big problem.” If the government is getting more money collecting unreported taxes than it costs to fund the collecting of said taxes, what’s the problem?
Just one of the many sectors where budget cuts are going turn into huge losses down the line. The consequences of cutting healthcare and education are (going) to be much worse.
Exactly as designed, makes it that much harder for the next government to fix this up so you can shove all the blame on them when it starts going down the drain.
This is not something you can fix quickly either, as with State the loss of institutional memory and all the things which should have been tracked but weren't and got lost are going to be a huge supplementary shock.
The consequences of not exposing healthcare and education to cost pressure have already been catastrophic for consumers of both, so I'm not quite sure where you're going with this one.
Edit: A lot of downvotes, but no examples. Such cuts are always talked about as if though they have factually happened. To my knowledge, I’ve never actually seen such a cut in the United States at the federal, state, or local level. Sometimes, there have been attempts to limit the rate of spending growth, but those seem to always fail too.
When the executive branch doesn't agree with the law, one tool they have as a separate branch of government is to not enforce the law. In U.S. political history, President Andrew Jackson reportedly responded: "John Marshall has made his decision; now let him enforce it!" referring to the Supreme Court ruling in https://en.wikipedia.org/wiki/Worcester_v._Georgia.
I think it’s because it’s a stealth tax cut. It might be able to win the political argument for lowering taxes, but by cutting funding for enforcement, you’re encouraging scofflaws and thus get the unpopular outcome you desired without having to go on television and defend it.
A similar thing plays out when politicians want to cut popular social programs. They manufacture a budget crisis (typically through instituting a popular tax cut) and then solve the crisis by cutting the funding to the thing they already decided they didn’t like.
> IRS is auditing fewer tax returns from corporations because it has fewer people and resources available to identify potential errors and follow up on questionable tax returns
On one hand I do want businesses to pay their fair share. On the other hand I don't want to encourage massive tax agencies which must justify their numbers by auditing and harassing as many people as possible. Often small businesses that don't have to resources to defend themselves like large corporations. Very similar to police departments who justify their existence by writing tickets and have quotas set up to encourage cops to harass people. Does not seem much more than a shakedown.
Generally they don't harass people unless something seems amiss and there is a large enough discrepancy to justify it.
And there's eventually a marginal tipping point where more money spent in audits won't net more recovered revenue. Generally the smaller the fry, the less you can recover from them.
Can't we structure incentives to avoid that problem? Eg. If you audit a large corporation and expose major fraud you get a large bonus. If you audit a small business and find only only a minor infraction, then your bonus pool is reduced.
The article is rather misleading. Here is the underlying article, which will be published this year but was actually received in September 2016: https://www.ntanet.org/wp-content/uploads/proceedings/2016/1... (follow the link in the article, which lists the receive date as September 30, 2016).
The article mentions the Tax Cuts and Jobs Act of 2017 (Trump's tax cuts). But the IRS budget cuts discussed in the article are actually from 2015, stemming from the kerfuffle over the IRS allegedly targeting conservative groups for increased scrutiny.
Separately, the article fails to address the nature of the additional revenue that could hypothetically have been collected. Pages 26-27 of the article address the study's finding that "the IRS collects a larger portion of proposed deficiencies when it has fewer resources." In the authors' view, that could be because "the IRS focuses on weaker taxpayer positions when its resources are limited." In other words, a larger enforcement budget leads the IRS to go after cases where the IRS is less certain it will win because the facts are more debatable. The authors do not assess the merits of those cases or whether it would be socially desirable to pursue them.
What does the last sentence mean exactly? "The IRS is fundamental in preventing businesses from engaging in transactions that aggressively reduce their tax liability."
It's not clear to me what is actually being said here because engaging in transactions that reduce tax liability is legal.
Amazon pays taxes, not sure how anybody still believes this piece of misinformation. You do realize it is Congress who creates the tax rules to begin with, so if anyone is at fault for the tax 'loop holes' these companies leverage, it's corrupt legislators.
"In 2017, Amazon paid close to $1 billion in income tax. In 2018, the amount jumped to $1.18 billion, accounting for local, state, and international taxes."
One of the reasons (among many) is the expense treatment of stock based compensation was changed I believe as part of Sarbanes-Oxley. Companies are now required to expense stock given as compensation since it will have a dilutive effect on existing shareholders. Amazon issue billions of dollars in stock each year to its employees. Amazon also operates high cashflow but low margin businesses which make its net income very small. The company has emphasized free cash flow to investors for at least 20 years.
[+] [-] gok|6 years ago|reply
Also unmentioned is the very real negative externalities that IRS audits cause. Audits disproportionately affect poor people [2], who are also the least able to spend time dealing with them. The United States already has extremely low tax evasion rates [3]. Rather than spending money to catch more of the very few cheaters by audits, other country's tax authorities have found "nudge" letters were found to be similarly effective and vastly cheaper.
[1] https://www.aaajournals.org/doi/abs/10.2308/accr-52520?utm_s...
[2] https://projects.propublica.org/graphics/eitc-audit
[3] https://www.researchgate.net/figure/Size-and-development-of-...
[+] [-] Spooky23|6 years ago|reply
A good friend was a specialist in a few tax evasion schemes used by real estate developers and a few other more obscure areas with similar methods. Basically, there were about 50 people nationally doing this in the early 90s, but the program was defunded over time and when he retired, there were 4. He spent about 60% of his time flying all over the country to testifying in court. Today there is nobody, the last guy retired last year.
By my friend's reckoning, his direct work accounted for $100M in recovered revenue per year. Some big cases were multiples of that. They have models that show the deterrent effect that enforcement has -- that $100M in recovery may deter $1B in undetected fraud. That is money being stolen from the treasury.
[+] [-] humanrebar|6 years ago|reply
[+] [-] alt_f4|6 years ago|reply
Actually, that is money being stolen by the treasury from the business owner.
[+] [-] pmoriarty|6 years ago|reply
Such people really need to get a sense of proportion.
The destitute, despised, downtrodden guy who slaves away to support their family by mowing your lawn, picking apples for you, driving you somewhere, or serving you your burger is not your enemy.
[+] [-] davinic|6 years ago|reply
I noticed from her Facebook page that she owned a ranching operation, so I searched her name in the EWG Farm Subsidy Database and saw that she and her husband had received $18k in subsidies in 2018, and nearly $250k since 1995.
[+] [-] Spellman|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] HNcantBtrustd|6 years ago|reply
[deleted]
[+] [-] ptero|6 years ago|reply
Simplifying tax code will go much further than trying to staff up IRS. My 2c.
[+] [-] berbec|6 years ago|reply
[+] [-] danenania|6 years ago|reply
That said, the absurd complexity of the tax code is also a problem here, since you don't want the government doling out bankruptcy-inducing penalties on businesses that might just be making an honest mistake. The whole system clearly needs an overhaul. It should be simple enough that when a business severely underpays, it will be very likely that they did so on purpose, and therefore a large, deterrent-worthy penalty can be justified.
[+] [-] chris11|6 years ago|reply
[+] [-] __jal|6 years ago|reply
It breeds sociopathy among the executive class that doesn't need any help in that department while encouraging nonproductive "investment".
[+] [-] unforeseen9991|6 years ago|reply
[+] [-] sbochins|6 years ago|reply
[+] [-] numakerg|6 years ago|reply
[+] [-] masklinn|6 years ago|reply
This is not something you can fix quickly either, as with State the loss of institutional memory and all the things which should have been tracked but weren't and got lost are going to be a huge supplementary shock.
[+] [-] maehwasu|6 years ago|reply
[+] [-] abtinf|6 years ago|reply
Edit: A lot of downvotes, but no examples. Such cuts are always talked about as if though they have factually happened. To my knowledge, I’ve never actually seen such a cut in the United States at the federal, state, or local level. Sometimes, there have been attempts to limit the rate of spending growth, but those seem to always fail too.
[+] [-] mrnobody_67|6 years ago|reply
[+] [-] rietta|6 years ago|reply
[+] [-] DerpyBaby123|6 years ago|reply
https://en.m.wikipedia.org/wiki/Starve_the_beast
[+] [-] corybrown|6 years ago|reply
[+] [-] jonathankoren|6 years ago|reply
A similar thing plays out when politicians want to cut popular social programs. They manufacture a budget crisis (typically through instituting a popular tax cut) and then solve the crisis by cutting the funding to the thing they already decided they didn’t like.
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] devoply|6 years ago|reply
On one hand I do want businesses to pay their fair share. On the other hand I don't want to encourage massive tax agencies which must justify their numbers by auditing and harassing as many people as possible. Often small businesses that don't have to resources to defend themselves like large corporations. Very similar to police departments who justify their existence by writing tickets and have quotas set up to encourage cops to harass people. Does not seem much more than a shakedown.
[+] [-] mrguyorama|6 years ago|reply
[+] [-] Spellman|6 years ago|reply
And there's eventually a marginal tipping point where more money spent in audits won't net more recovered revenue. Generally the smaller the fry, the less you can recover from them.
[+] [-] MarkMc|6 years ago|reply
[+] [-] ausbah|6 years ago|reply
[+] [-] rayiner|6 years ago|reply
The article mentions the Tax Cuts and Jobs Act of 2017 (Trump's tax cuts). But the IRS budget cuts discussed in the article are actually from 2015, stemming from the kerfuffle over the IRS allegedly targeting conservative groups for increased scrutiny.
Separately, the article fails to address the nature of the additional revenue that could hypothetically have been collected. Pages 26-27 of the article address the study's finding that "the IRS collects a larger portion of proposed deficiencies when it has fewer resources." In the authors' view, that could be because "the IRS focuses on weaker taxpayer positions when its resources are limited." In other words, a larger enforcement budget leads the IRS to go after cases where the IRS is less certain it will win because the facts are more debatable. The authors do not assess the merits of those cases or whether it would be socially desirable to pursue them.
[+] [-] turc1656|6 years ago|reply
It's not clear to me what is actually being said here because engaging in transactions that reduce tax liability is legal.
[+] [-] aaronbrethorst|6 years ago|reply
[+] [-] todipa|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] londons_explore|6 years ago|reply
We currently punish those people badly, which is wrong IMO
[+] [-] SubiculumCode|6 years ago|reply
[+] [-] alanwil2|6 years ago|reply
[+] [-] spamlord|6 years ago|reply
"In 2017, Amazon paid close to $1 billion in income tax. In 2018, the amount jumped to $1.18 billion, accounting for local, state, and international taxes."
https://www.forbes.com/sites/stephaniedenning/2019/02/22/why...
[+] [-] jumbopapa|6 years ago|reply
[+] [-] sdinsn|6 years ago|reply
[+] [-] sseveran|6 years ago|reply
https://www.macrotrends.net/stocks/charts/AMZN/amazon/stock-...
[+] [-] tick_tock_tick|6 years ago|reply
[+] [-] wysifnwyg|6 years ago|reply
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] m000|6 years ago|reply
[+] [-] citilife|6 years ago|reply
[+] [-] dlp211|6 years ago|reply
[+] [-] colejohnson66|6 years ago|reply