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Giving the IRS $80 Billion to Raise Taxes

The operation of the IRS is something with which I am vaguely familiar having dealt with them regularly for over 40 years. President Biden wants to give the agency more money on the proposition that rich people and corporations cheat on their taxes. He apparently believes that greater enforcement will bring in $700 billion (Treasury Dept estimate) over the next decade. And Santa Claus and the Tooth Fairy are my personal friends.

Let’s start with how the agency got in this fix. President Obama used the agency to squash applications for non-profit groups during his first term. Remember his henchman, Lois Lerner? The Republicans said if the agency has money for that garbage, then they have too much money. Thus, the agency lost funding and never got it back.

The Washington Post decided Biden’s plan made sense; thus, they were going to try and convince the world. They worked with five prior IRS Commissioners to produce an Opinion piece endorsing Biden’s plan.
Three of the Commissioners were from the last century. In tax terms, these three may as well be Fred Flintstone given how frequently radical tax changes occur. At least they are still alive and are tax professionals. The two more current authors were Democrat appointees who never had any prior tax experience before they took office. One left and went to work for a Hedge Fund.

The five delineate how the agency has less money and fewer staff than it did in 2010. Then they point out a quizzical problem. The IRS has been burdened with new tasks such as enforcing Obamacare rules and sending out stimulus checks. Someone should have thought that through and decided it best be handled by another agency.

The authors go on to say that if you call the IRS today, the phones are barely answered (just 24%). As someone who has spent hours on hold with the IRS, their staffing for answering calls has always been horrible. Here is the kicker: you cannot and should not rely on any advice they give you. The staff answering the phones are their least qualified personnel and they generally do not know tax law. Other than getting perfunctory answers about payments made and receipt of returns, you cannot put any value into what they tell you. Even the IRS says that.

The IRS can hire more people to answer phones and put them through training, but what will they know? The people they hire will have zero tax background and likely barely understand the tax system. It will take years for this lower-level staff to gear up to being helpful.

The former commissioners go on to babble about how this Biden “investment” will reap rewards. They say Biden wants more third-party compliance. Think 1099’s, mortgage statements, etc. I am not sure what else they could possibly want on that front other than copies of our bank statements.

Third party documents sent to the IRS cause most audits today. These are called “letter audits.” You receive a letter stating, based on third-party documents received, that there is a discrepancy between what you reported and what the IRS has in its records. “Either prove us wrong or pay up.”

The one thing the former Commissioners say that is true is that the IRS computer system is abysmal. Many times, I will be speaking to an agent and ask a question. They say I am looking that up, but our computers are slow. The IRS has spent huge amounts of money upgrading their systems in the past to no avail. Why do the former commissioners think Biden has the magic bullet on that?

Let us look at the big picture on taxes. There are three truisms about government income and revenues that are being omitted here. I say this because these are provable over the last 60 years. The economic studies Biden and the MSM continue to quote are simply a waste. We have these provable facts:

1. Whenever tax rates are reduced more money flows into the government. Look it up. After the Kennedy, Reagan and Trump tax rate cuts went into effect, more revenue came in. The Biden people like to deflect about this and say that the deficit grew under Trump. That is a separate issue.

2. Any time the government raises tax rates they NEVER, ever get the projected revenue. People alter their behavior to mitigate their taxes.

3. Whenever a government program is started, the actual expenditures are always grossly understated. They grow exponentially. Food stamps (SNAP) is a perfect example.

What the commissioners did not address, and the Biden people are hiding, is that Trump already achieved greater tax compliance. Corporations kept moving operations offshore to avoid onerous American tax rates compared to all countries. We had the second highest rates in the world. The Trump cuts (adding in the state tax rates) put us barely in the middle of all countries’ tax rates. Biden foolishly wants to reverse this and then the corporations will reverse their current behavior and stop moving operations and earnings to the U.S. Biden can hire as many IRS agents as desired, but that will not stop corporations from pivoting to lessen their tax burden.

Individuals have fewer and fewer planning techniques. The IRS is already all over offshore accounts– so much so that many foreign banks refuse to open accounts for Americans who live in their country because of the reporting requirements. Tax rates are currently lower causing people to do less finagling.

Biden is denying all three of the above truisms. He will explode the deficit with ever greater expenditures and never achieve his revenue goals. People will alter their behavior to avoid taxes. People will once again base business decisions on tax consequences as opposed to the economics of the deal.
Biden is using class warfare to attack successful people and corporations to accuse them of tax cheating. That is a disgusting statement by a sitting President.

Here is a way the IRS could significantly increase compliance. Go after the underground economy. You know, the money that will not be reported by all the illegal aliens Biden is allowing in the country. I have always said the tax agencies never want to do that because they do not like to do real work.

Instead, they will not go after rich individuals or corporations for more IRS dough. They will go after ordinary hardworking Americans because that is the easy thing to do. You can put money on that in Vegas.