Sam Pizzigati
Published: Sunday 22 April 2012
“The annual federal income tax filing deadline came and went with America’s super rich once again stiffing Uncle Sam for hundreds of billions of dollars in taxes due.”

So Much Tax Evasion, So Little Accountability

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Every once in a while, our plutocrats drop all democratic pretense and arrogantly offer up a raw display of their ample political might. One such display came last week. On Monday, a proposal to fix a minimum tax on America's rich — the “Buffett rule” — went nowhere in the U.S. Senate.

The Buffett rule proposal needed 60 votes to beat back a filibuster. The actual votes the proposal received: just 51.

But last week's most impressive show of plutocratic power actually came the next day — and made no headlines. On Tuesday, the annual federal income tax filing deadline came and went with America’s super rich once again stiffing Uncle Sam for hundreds of billions of dollars in taxes due.

We're not talking loopholes here, those entirely legal tax code provisions — like lower tax rates for capital gains — that give the rich preferential treatment at tax time. We're talking outright tax evasion, the willful misreporting of income.

The IRS periodically tries to measure how much of this cheating goes on. The latest estimate, released this past January and covering 2006, puts the tax gap — the difference between taxes owed but not paid on time — at $385 billion.

Some of this gap represents “innocent” tax return mistakes, the rest outright fraud. Taxpayers at all income levels, of course, cheat. But the only fiscally consequential cheating comes from the super rich. They both cheat at a higher rate than Americans of modest means and — given the enormity of their incomes — deny Uncle Sam far more tax dollars when they do cheat.

Why can't Uncle Sam get at those lost tax dollars? Have the super rich and their handsomely paid handlers simply become too skilled at squirreling income in tax havens? Do the complexities of the global economy simply make collecting taxes from the rich an impossibly difficult task?

IRS officials certainly don't think so. In 2009, they confidently launched a new task force dedicated to scoping out the super rich. This “Global High Wealth Industry Group,” the IRS Commissioner Doug Shulman predicted early in 2010, would bring a “game-changing strategy” to the battle against ultra wealthy tax cheats and their most sophisticated tax evasion stratagems.

Now, over two years later, an analysis of IRS data by tax experts at Syracuse University suggests that the tax game hasn't yet changed. The IRS super-rich task force, reports the Syracuse Transactional Records Access Clearinghouse, has so far completed intensive audits on only a few dozen super rich.

That few dozen represents only about 0.4 percent of the more than 8,300 U.S. taxpayers currently reporting over $10 million a year in income.

On the bright side: The tiny handful of audits the special IRS task force has completed did recover $47.7 million in unpaid taxes. At that recovery rate, if the IRS had completed audits on all the taxpayers making over $10 million, the federal treasury would likely have picked up over $200 billion.

With a return on audit investment this high, why aren't IRS officials doing more to audit the super rich? Agency officials, for their part, insist they are doing more to make sure the rich pay the taxes they owe. They point to the rising number of traditional “correspondence” and “field” audits on high-income taxpayers.

In 2011, the IRS conducted these traditional audits on 29.9 percent of all taxpayers reporting over $10 million in income, a considerable hike over the 18 percent of these deep pockets audited traditionally in 2010.

But analysts at the Syracuse tax center note that the IRS is spending less time per wealthy taxpayer on these traditional audits, only 2.6 hours, on average, for each by-mail “correspondence” audit and only 31.4 hours on the average “field” audit, down from 41.7 hours in 2007.

The much more intensive audits that the new IRS high-wealth unit conducts, by contrast, can take months of staff time to complete. The agency simply does not have a large enough staff complement to put in that sort of time for more than a relative handful of no-holds-barred audits. The reason: Congress over recent years has consistently declined to adequately fund IRS tax-collection operations.

In just the last two years alone, budget cuts have cost the agency some 3,000 enforcement staff positions. The bigger picture: Just 20 years ago, in 1992, the IRS had 114,758 staff to cover a U.S. population of 249.4 million. In 2011, the agency’s 94,709 staff had to cover a total U.S. population of 312.6 million.

More taxpayers, fewer staff. The tax lawyers, accountants, lobbyists, and private bankers who make up what Northwestern University economist Jeffrey Winters has dubbed the “income defense industry” couldn’t be more pleased. They’re making millions cutting tax corners for the super rich, at precious little risk either to themselves or their clients.

In a fairer tax universe than ours, tax collectors would have all the resources they need to scour the tax returns of the super rich and squash their tax-evasion games. And in that fairer tax universe, tax collectors wouldn't just scour tax returns. They would scour, just as finely, the haunts of the rich and famous.

In Greece and Italy, two nations with a history of chronic and massive tax evasion by the rich, tax collectors are now doing that broader scouring. They're checking license plates at elite ski resorts, for instance, to pinpoint high-spenders, then checking the incomes these high-spenders have filed on their tax returns.

Aggressive tactics like these are identifying tax evaders that traditional audits have hardly ever snared.

Could our IRS ever become this aggressive? In Italy and Greece, tax collectors only stopped playing footsie with the wealthy after economic calamity hit. The Greeks and Italians never saw calamity coming. We don't have that excuse.



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ABOUT Sam Pizzigati

 

Veteran labor journalist Sam Pizzigati, an Institute for Policy Studies associate fellow, edits Too Much, the Institute's online weekly on excess and inequality. His latest book: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 (Seven Stories Press, November 2012).

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9 comments on "So Much Tax Evasion, So Little Accountability"

teabagged2Death

April 23, 2012 9:48pm

We, the real taxpayers, must make a subscription to RollCall mandatory for every American so they may see exactly how these wealthy tax cheats have reached obscene levels while claiming to be public servants. Their individual listed net worth is not including taxpayer-funded expense accounts, health care, and far too many other freehies, all on our dime.

RollCall annually lists the 50 richest members of Congress and these heavily overpaid, supremely underworked, Alleged Servants for the Commonwealth fight like ravening wolves to be the Top Dog/Doggette.

Last week on C-SPAN, current #5, Senator Mark Warner, audaciously cried to his budget committee that "since 47% of the population is at poverty level and not paying any taxes, this will be an added 35 million per annum in lost revenue that needs to be tapped because everybody needs to tighten their belts."

We, the belt-tighteners, are now expected to lose our hard earned Social Security and MediCare, as well as start paying 20% of our miniscule incomes. As a former truckdriver, now disabled earning less than 15K per annum, I went from being a consistently productive taxpayer for 4 decades to a persona non grata just because my body wore out from osteoarthritis.

Now these tax-evading, anti-union corporations are claiming to be "individuals" and are looting our treasury by misusing words such as "entitlements" for our hard earned benefits and emergency services, as well as "austerity", which by definition in the dictionary means "to cut back on luxuries". Peruse this list to see who is wealthy enough to actually be "austere".

We, the real individuals, must collectively call for law enforcement officers to bring RICO charges against these fraudulent tax cheaters. One may access this list of infamous racketeering tax cheats at the website below. Read this and weep!

http://www.rollcall.com/news/mccaul_leaps_top_50_richest_members_congres...

Now is the time for all good Americans to come to the aid of their country!

Charles Thomas

April 23, 2012 6:49pm

I'll start paying taxes again when the elite starts paying theirs. Until then I look forward to "retirement" in the IRS prison slave labor gulags with free room and board, and medical--a retirement I can no longer afford on my own.

Theodore Ziolkowski

April 23, 2012 5:54pm

Income Tax Reform.

Will Rogers said: “The difference between Death and Taxes is Death doesn't get worse every time Congress meets.”

Thomas Paine urged that everything "beyond what a man's own hands produce" was a gift that came to him simply by living in society, and, hence, "he owes on every principle of justice, of gratitude, and of civilization, a part of that accumulation back again to society from whence the whole came."

First I will say that any Income Tax Reform that continue to allow for Exceptions, Exemptions and Deduction will never be Fair and Equal to all. To many loopholes will exist through which the 1.0% of the Rich and Powerful Individuals and Corporations, Companies, Institutions and Organizations squeeze through and pay NO TAXES. Even if we made the INCOME TAX RATE on every individual who made over one million dollars be 99%, with the use of the Exceptions, Exemptions and Deductions they could not pay any taxes.

The Entire Income Tax Code MUST be Repealed and Replaced. By the elimination of ALL the EXCEPTIONS, EXEMPTIONS, and DEDUCTIONS and by making every source of Income [Wages, Bonuses, Benefits, Interest Earnings, Capital Gains, and any other earnings or Gains] be subject to the same Tax Code and Rate no matter How it was earned, Where it was earned, or What it was earned from.

If Congress wants to provide an incentive to Corporations, Companies, Institutions or Organizations, Congress can do so by creating a Tax Credit with specified amounts and time limits.

HERE is an Income Tax Code that is based upon the ability to pay. Just like everything else in life. PLEASE note that the implementation of this Tax Code would significantly reduce the size of the IRS, reduce the amount of time to prepare your Taxes, and sorry to say it, but it gets rid of the need for Tax Preparation Companies.

The official numbers don’t tell the full story. The situation of the poor is actually considerably worse than the Government reports. The official poverty line is calculated as simply three times the minimal food budget first introduced in 1959, and then adjusted for inflation in food costs. In other words, the American poverty threshold takes no account of the cost of housing or fuel or transportation or health-care costs, all of which are rising more rapidly than the cost of basic foods. So the poverty measure grossly understates the real cost of subsistence.

Existing Poverty Income Taxes:
Income earned from $.01 to $13,537.00 for a family of one would pay Zero Tax Rate.
Income earned from $.01 to $23,689.00 for a family of two would be Zero Tax Rate.
Income earned from $.01 to $30,478.00 for a family of three would be Zero Tax Rate.
Income earned from $.01 to $37,267.00 for a family of four would be Zero Tax Rate.
Income earned from $.01 to $44,056.00 for a family of five would be Zero Tax Rate.
Income earned from $.01 to $50,845.00 for a family of six would be Zero Tax Rate.
Income earned from $.01 to $57,634.00 for a family of seven would be Zero Tax Rate.
Income earned from $.01 to $64,423.00 for a family of eight would be Zero Tax rate.

For those who are not in the Poverty Income Level the Tax Rates would be as follows:
Income earned from $13,537.00 to $100,000.00 would pay a 20.0% Tax Rate. PLUS.
Income earned from $100,000.01 to $500,000.00 would pay 25.0% Tax Rate. PLUS.
Income earned from $500,000.01 to $1,000,000.00 would pay 30.0% Tax Rate. PLUS.
Income earned from $1,000,000.01 to $50,000,000.00 would pay 35.0% Tax Rate. PLUS.
Income earned from $50,000,000.01 to $1,000,000,000.00 would pay 40.0% Tax Rate. PLUS.
Income earned from $1,000,000,000.01 and up would pay 45.0% Tax Rate.

I would also create a Financial Transaction Fee of $ .50 on each and every Financial Transaction, to generate from $2 to $3 Trillion in Revenue to “Reduce the Deficit and to Invest in our future, our Infrastructure and our middle class.”

U.S. Corporate Income Taxes that were actually paid (the effective rate) fell to a 40 year low of 12.1 percent in fiscal year 2011, despite corporate profits rebounding to their Pre-Great Recession heights. The United States of America, both taxes its Corporations less and raises less in revenue from corporate taxes than its foreign competitors.

Under my Corporate Tax Rate Corporations would pay 20.0% Income Tax Rate with NO Exceptions, No Exemptions and the NO Deductions. Or they can pay the same Tax Rates as an Individual, seeing as the Supreme Court has ruled they have the same Right to Freedom of Speech, therefore they should have the same Right to pay the same Income Tax Rates. Corporations should not make Business decisions based upon the Income Tax Loop Holes, they should be based on what is the best thing for the Corporation, Employees and the Investors. The top 500 Corporations, Companies, Institutions and Organizations within the Fortune 500, Pay No Taxes today. This would ensure that all Corporations, Companies, Institutions or for Profit Organizations that earned a Profit would PAY TAXES.

moreaboutthat

April 23, 2012 2:33pm

Tax cheats, in the eyes of the IRS, are those earning under $100,000 annually, particularly those in sales and the service industries. I'd like to see some research on this.

Jefffrey Hill

April 23, 2012 1:50pm

The US Secretary of the Treasury, Timothy Geithner, is a serial tax cheat who didn't bother to file when he was President of the NY Federal Reserve Bank and Asst, Secretary of the US Treasury for 8 years under the Bush/Cheney administration.
Obama could have nominated Nobel Economics Prize winner and Princeton economics professor Paul Krugman to the US Treasury Secretary position but freely chose serial tax cheat Timothy Geithner instead, and Geithner was confirmed amazingly.

Obama was originally going to pursue 17,000 UBS Swiss Bank account holding tax evaders, but that number dropped to 4452 and then 19 and then ZERO after he went golfing with the UBS bank president at Martha's Vineyard in 2009.
No explanation was ever given by Obama for his refusal to go after tax cheats who have their obscene wealth hidden in offshore tax havens.

Mitt Romney transferred his Swiss bank account money (to Lichtenstein or Luxembourg?) after the possibility of having his tax evading identity revealled to the US government in about 2010.
Romney also revealled recently that he has tax shelter bank accounts in the Caribbean (Cayman Islands, Bahamas).
A multi-millionaire rethug teabagger presidential candidate is an open tax evader/tax cheat who should be categorically rejected by all voters without any hesitation.

The foxes are guarding the chicken coop.

belleville

April 23, 2012 12:51pm

Maybe our country could hire thousands of the unemployed to follow the super rich around, to catch them at tax evasion. In 1938 we had 33 tax brackets in order to tax all classes of income. These brackets ranged from 4% for all income up to $64,000., all the way up to 79% for income over $79,Million. This is what we need today. The only way to bring back tax rates similar to 1938 is to get rid of most of the Republican Congressmen. This Republican controlled Do-Nothing Congress is a disgrace on everything this country has stood for, for hundreds of years. Vote these Republicans out of office, is the only answer. God Bless the 99%.

murray_1337

April 23, 2012 3:34pm

The first thing Americans will have to do is to NOT give into the fear mongering that right wing nut jobs get away with these days.

dmillerfla

April 23, 2012 12:08pm

Simplify the tax code to eliminate all special interest deductions making all pay a share and the problem will largely go away. The complexity of the tax code is what makes all the crazy exclusions from paying, possible. It cannot be fixed with yet more regulations as almost no one can even understand it as it now is.

oldhat

April 23, 2012 12:00pm

tax cheats = Timothy F. Geithner ,daschle,Warren Buffett's Berkshire Hathaway, the eighth-largest public company in the world according to Forbes, openly admits to still owing taxes for years 2002 through 2004 and 2005 through 2009, according to the New York Post.