As you can see from looking at page 16 of this Treasury report, the first two years show losses, but then gains start, and rise rapidly.
For the last year covered by the report, 2031, the projected return is about 540 percent, up from about 470 percent in 2030. Gains would presumably continue rising in future years.
As someone who realizes that Washington is a hotbed of fantasy finance, my initial reaction was to laugh.
My second reaction was to compare the bulk-up-the-IRS idea with examples of Washington numerical nonsense that we’ve seen over the years. These include the right-wing thesis that big tax cuts more than pay for themselves by stimulating economic activity, which they don’t; and the left-wing Modern Monetary Theory, which I call the Magic Money Theory, that federal budget deficits don’t matter because the government can create as many dollars as it needs without any adverse consequences.
What I saw is that even though the numbers that the Treasury uses to project profits are the result of assumptions built on assumptions, restoring the IRS to something resembling its former state is a good idea. Regardless of whether you buy the 400 percent return story.
Here are some reasons I think this way, based on my experience of writing about companies and some very rich people that have played endless tax games.
I’ve been enraged for years watching the shameless maneuvers of some big-time U.S. corporations (including Amazon, led until recently by Washington Post owner Jeff Bezos) that let them avoid paying taxes to our country, which is the place in which they were founded and that made their success possible. The same holds true for some individual tax-dodging billionaires who have prospered because of the freedoms and protections that our country offers.
So I figure that anything that might shame tax avoiders who squeeze through loopholes and also scare tax evaders (who by definition are breaking the law) would be good for our country. If taxpayers come out way ahead financially, that’s a bonus. It’s not a requirement.
Anyone who pays attention knows that the IRS staff has been shrinking for years, that it’s almost impossible for an average person to get IRS people on the phone to answer questions, and that the IRS back-office is a total mess. All this ought to be fixed, regardless of whether it produces financial gains for taxpayers.
What I hadn’t realized until I delved into the Treasury’s May report was how much IRS audits of big companies — those with more than $20 billion of assets — have fallen in recent years.
In 2010, according to the report, 98 percent of tax returns filed by those companies were audited. By 2018, it had fallen to 49 percent. I assume that the numbers were even smaller for 2019 and 2020.
You’ve got to figure that having more audits of these big companies — and having the companies know that they’ll be audited annually by well-trained IRS staffers — has to increase tax revenue by decreasing gameplaying.
Please note that I’m not demonizing “the rich” — which the Biden administration defines as households with more than $400,000 of annual income — or big business. I’m just trying to apply some common sense to the mess at the IRS.
I asked the Treasury how — if Biden’s proposal is adopted — we’d ever know if it’s coming close to meeting the projected returns.
The answer, from Treasury senior spokesman John Rizzo: “Americans will be able to see audit rates among top earners increasing, instead of declining as they have for decades. Providing additional review of those who earn income in opaque ways will ensure those at the very top pay the taxes they owe, just like American workers do.”
It’s not clear how much of Biden’s proposal, if any, will go into effect because many Republicans are speaking out against it.
Forgive my cynicism, but I think that Republicans are opposing the IRS fix to play up to big companies and ultrarich people who are tax-averse, just as the Biden administration is playing up to liberals by using the word “evasion” a lot and saying that beefing up the IRS is “progressive” because it will affect only big companies and “the rich.”
I hope that the IRS gets invigorated and that the profit projections turn out to be reasonably accurate.
I also hope that a better-equipped IRS will let average people get something resembling decent customer service.
And finally, I hope that the combination of a better-equipped and better-staffed IRS and fear of public shaming (such as recent ProPublica stories about some billionaires’ tax avoidance) will change the way that big companies and ultrawealthy tax-dodgers behave.
Those changes would be a lot more valuable to our country, financially and socially, than any profits that taxpayers might get from a beefed-up IRS.