Tax Avoidance.

            The United States Department of the Treasury estimates that, in 2019, federal revenue amounted to $3.5 trillion, federal spending amounted to $4.4 trillion, and had a deficit of $984 billion.[1] Of the total revenue, $1.7 trillion came from individual income taxes and another $232 billion from Corporate Income Taxes.  The Treasury also estimates that, in 2019, Americans paid around $600 billion less in taxes than they actually owed.[2]  Roughly, the unpaid taxes amount to one-seventh of federal spending, one-sixth of federal revenue, and two-thirds of the deficit.   Seen just from the perspective of Individual Taxes, the unpaid taxes amount to either one-fourth of the total taxes that should have been paid and one-third of the taxes that actually were paid. 

            According to the Treasury, the top one percent of income earners are responsible for about 27 percent ($163 billion) of the unpaid taxes; the next four percent of income earners are responsible for about 50 percent ($307 billion) of the unpaid taxes; the next seventy-five percent of income earners are responsible for about 21 percent ($125 billion) of the unpaid taxes; and the bottom twenty percent of income earners are responsible for less than 1 percent ($ 6 billion) of the unpaid taxes.[3] 

            The additional $80 billion over ten years for the Internal Revenue Service (IRS) included in the “Inflation Reduction Act are intended to address this issue.  It includes $45.6 billion for “enforcement.”  The IRS projects that it will earn an additional $120 billion and change over the cost of the funding from enhanced enforcement. 

            Purely in terms of the gross income, it’s $20 billion and change each year.  As a return on an $80 billion investment, that’s an average of $12 billion in new money each year.  When, according to the Treasury, taxpayers are holding back $600 billion a year.  Eeez joke, yes?[4] 

            Nobody (except me, just in case there’s an IRS auditor reading this) likes the IRS.  Everyone worries that they are going to make an innocent mistake on the—to an untrained eye—complicated tax forms, get audited, and wind up making license plates in some federal hoosegow.  Doesn’t matter what the truth is; that’s what people worry about in the lizard part of their brain.  So, the IRS is an easy ox to gore come budget-writing time. 

            It has been.  Since 2010, the budget of the IRS has been reduced by a total of 20 percent.  The workforce for all aspects of tax collection has fallen substantially and the technology for handling tax information is reported to be outmoded.  In theory, about $35 billion of the new money is supposed to go to non-enforcement purposes. 

            What to make of these figures?  The IRS may put the money into pursuing a few high-profile and highly-publicized cases in the top five percent of income earners in hopes of scaring all the others into paying their share (or, at least, more).  Also, this may be throwing a bone to Progressives to off-set their surrender to Joe Manchin and Kyrsten Sinema.  If the IRS falls short on its plan to soak the very rich, it may fall back to scaring the less rich to not really rich to make up the difference.  Until that happens, and it may, the Republican warnings aren’t very credible. 


[1] See: Where Federal Revenue Comes from, How It’s Spent | St. Louis Fed (stlouisfed.org)

[2] German Lopez, “The Roots of Republicans’ I.R.S. Conspiracy Theories,” NYT, 28 August 2022. 

[3] The NYT article unintentionally mis-states the shares. 

[4] As my grandfather said to my uncle when first regarding the uncle’s undersized newborn child, “You hardly got your seed back.” 

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