Why Trump, Kushner & Co. Take an Unbusinesslike Approach to Balancing the Books
EDITOR’S NOTE: DCReport first published this article June 13, 2017. It has not been updated to reflect changes to the tax law passed by Congress and signed by Trump.
The Republicans are about to slash the budget of the top money-making department of the U.S. government, an agency that brings in $300 for every $1 it spends. Despite returns on investment that any CEO would die for, Republicans hate it. In seven years, they have cut its budget seven times.
The Internal Revenue Service was responsible for bringing in $93 out of every $100 the government took in last year. That’s $3.3 trillion in revenues while spending just $11 billion on itself. According to an estimate by the Committee for a Responsible Federal Budget, the IRS fails to collect $600 billion a year in taxes, mainly because it doesn’t have the bodies to do its job.
That’s $160 billion more than Trump’s projected government deficit in 2018. And they aren’t new taxes either, just taxes that are owed but not paid.
Talk about your low hanging fruit.
Which is where First Son-in-Law Jared Kushner comes into the picture. He has been assigned the task of making the government more businesslike. Every business must keep revenue coming in the door. Starving the parts of the business that bring in the bucks is as un-businesslike as you can get. Jared Kushner would be crazy to nickel-and-dime IRS tax enforcement.
Treasury Secretary Steven Mnuchin, the IRS’ direct overseer, seemed to agree when he said at his confirmation hearing back in January that he was “surprised and concerned” to learn that the IRS workforce had been cut 30% since 2011. Nevertheless, Trump, Kushner, Mnuchin and budget chief Mich Mulvaney plan to cut the IRS more. Their budget proposal would trim IRS enforcement money and people by 3.6% from 2017 to 2018.
Among the cuts: Slash one out of seven IRS people who try to answer taxpayer questions and actually collect the large majority of taxes. The strategy? Get people furious at the lack of IRS customer service.
Maybe more to the point for Trump, Kushner and Mnuchin is that they, like most corporations and other wealthy Americans, have used many exotic tax strategies to keep millions of dollars from the IRS. The few peeks we’ve had at Trump’s tax returns, for example, show that he is especially adept at gaming the system.
So it’s not surprising that Trump, Kushner & Co. would like to see that IRS enforcement money and people are cut, resulting in even fewer audits of corporations and the wealthy. In 2016, only one out of about 150 taxpayers was audited.
The biggest drop in audit rates has been for the highest income taxpayers. Big companies also benefit. In 2011, nearly one in five was audited. In 2016, it was about one in 10.
According to IRS figures, it recovers $9.60 for every $1 spent on audits, collections and property liens and seizures. A range of outside experts say the IRS would recover $6 for every $1 additional enforcement dollar.
The Congressional Budget Office modifies that by saying that IRS would have to re-develop its enforcement capabilities with a bigger budget, so that the direct revenue gain from an extra $1 billion spent would be $2 billion the first year, moving up to $6.4 billion in the third and later years.
The IRS says there’s a bigger, indirect effect from added enforcement—three times as large as the higher direct collections: deterrence of people who would otherwise hide income from their tax returns, or cheat on taxes in other ways. David Kamin of New York University law school says that not counting the deterrence effect “is like accounting for the effect of a police department on bank robberies by measuring [only] the number of thieves caught in the act or afterward.” To maximize deterrence, IRS initiatives would have to be aggressive and well-publicized.
Look at the flip side. What happens if IRS enforcement continues its six-year slide, as the Trump budget proposes?
Revenue since the first of the year is coming in much slower than expected, Treasury Department data show, and the government may hit a wall and not be able to pay its bills by September. While there are all kinds of complicated and subtle explanations for this, the obvious explanation is that after so many years of IRS enforcement decline, lots of people think they don’t have to pay taxes, and IRS won’t find them.
Vic Simon is a business reporter for the Montgomery County (Md.) Sentinel.