There were lots of takeaways from Michael Cohen’s explosive congressional testimony this week: about Russia, racism, redemption.
To me, the biggest lesson was that we desperately need to increase the Internal Revenue Service’s budget.
Cohen, formerly President Trump’s personal lawyer, repeatedly offered accounts of not only how comfortable Trump became with cheating Uncle Sam but also how ill-equipped our tax cops were to catch him.
We heard, for instance, Cohen’s story about how the president used the Trump Foundation, supposedly a charitable organization, as his personal piggy bank.
According to Cohen, Trump directed him to hire a straw bidder to purchase a nine-foot painting of Trump at auction. The bidder was then reimbursed with tax-advantaged funds from the Trump Foundation. Cohen said Trump had similarly used foundation funds to buy other portraits of himself that now hang in his golf clubs, a pattern previously documented by my colleague David Fahrenthold.
Cohen also spoke about arranging a service contract for Trump to speak at the Ukrainian-American Economic Forum. At Trump’s direction, Cohen said, he had the $150,000 payment for these Skyped-in remarks made to the Trump Foundation instead of to Trump directly.
Having payment for a service made to a foundation rather than to the provider of the service, apparently to allow the provider to evade taxes, “seems like outright tax fraud,” said University of California at Irvine law professor Omri Marian.
Further questioning from Rep. Alexandria Ocasio-Cortez (D-N.Y.) addressed a New York Times report about the Trump family’s use of dubious or outright fraudulent schemes to duck taxes on Fred Trump’s estate. And, of course, Republicans hammered Cohen about Cohen’s own tax misdeeds; as part of his plea agreement, Cohen pleaded guilty to tax fraud. Trump has said he has “brilliantly” used the tax laws to his advantage, but has repeatedly denied any lawbreaking.
Many of Trump’s (and his associates’) alleged attempts to evade the taxman — with the evidence often hanging in broad daylight, as it were, in his clubs — were astoundingly brazen. That may partly just reflect who Trump is. But it also may reflect Trump’s (accurate) assessment of just how outgunned the taxman has become.
Cohen again: “When telling me in 2008 or 2009 that he was cutting employee salaries in half, including mine, he showed me what he claimed was a $10 million IRS tax refund, and he said that he could not believe how stupid the government was for giving ‘someone like him’ that much money back.”
When asked why Trump was reluctant to release his tax returns, Cohen suggested that Trump feared that if anyone had the expertise and bandwidth to go through his tax filings, they’d probably find something fishy.
“What he didn’t want was to have an entire group of think tanks that are tax experts run through his tax return and start ripping it to pieces, and then he’ll end up in an audit and he’ll ultimately have tax — taxable consequences, penalties and so on,” Cohen explained.
If true, that statement (that Trump feared an audit) would undercut Trump’s sorry excuse for not releasing his returns (that he was already under audit). But it would also reflect a grim reality: IRS enforcement activity has indeed loosened over the years, especially when it comes to the ultra-wealthy.
Since fiscal 2011, the audit rate for large corporations (with at least $10 million in assets) has halved. For households with income of more than $1 million, it has declined by two-thirds, according to IRS data.
Likewise, federal prosecutions referred by the IRS have plunged to their lowest level on record, according to data from Syracuse University’s Transactional Records Access Clearinghouse. In fact, adjusted for population size, IRS-referred prosecutions are just a quarter of their early-’90s peak.
Tax cheating by the wealthy is not costless. When they shirk, it just means law-abiding suckers — a.k.a. Leona Helmsley’s “little people” — have to pay more to make up for the shortfall.
So why has enforcement fallen? Why have people such as Trump — and Cohen, Paul Manafort and others with major red flags — been so confident their taxes won’t be scrutinized? It’s not because the “deep state” wants to go easy on well-heeled tax cheats.
It’s that our policymakers have systematically hobbled the IRS. Congress has given the agency more responsibilities while simultaneously slashing its resources. IRS staffing for key enforcement occupations has shrunk by about a third over the past six years.
That’s bad news if you care about fiscal responsibility, since the IRS brings in several dollars for every dollar it spends. It’s also bad news if you care about catching bad actors.