The United States of Tax Havens
Like our billionaires at home, foreign oligarchs and despots are sheltering untold sums from taxation across our country.
Over two years ago, the IRS announced an ambitious new effort to subject the super rich to unprecedentedly intensive audits. How’s that effort working out? Most lawmakers would rather you not ask.
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.[pullquote]The latest IRS estimate, released this past January, puts the tax gap — the difference between taxes owed but not paid on time — at $385 billion.[/pullquote]
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? [pullquote]The new IRS task force targeting tax evasion by the wealthy has so far completed intensive audits on a few dozen super rich.[/pullquote]
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.[pullquote]The IRS is spending less time per wealthy taxpayer on traditional audits.[/pullquote]
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.
Sam Pizzigati, the co-editor of Inequality.Org, also edits Too Much, the online weekly on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Read the current issue or sign up here to receive Too Much in your email inbox.