The IRS audits the middle class more than it audits the wealthy
In 2020, the Trump team’s last full year, U.S. households annually making over $1 million faced fewer tax audits than households with incomes low enough to qualify for the Earned Income Tax Credit. That had never happened before.
Close to a thousand taxpayers making over $1 million per year, Senator Ron Widen from Oregon has just pointed out, haven’t even bothered “to file tax returns over multiple recent years.”
Pulling back
As a new Americans for Tax Fairness report makes clear, since 2010 wealthy- people- friendly members of Congress have been squeezing the IRS budget big-time, forcing the agency “to drastically pull back on auditing the ultrawealthy.”
How drastically? Between 2010 and 2020, audits on millionaires dropped a whopping 92 percent.
The wealthy have little real cause for concern. Yes, many do currently cheat on their taxes. But most don’t have to cheat or even cut corners. Our deepest pockets can legally sidestep taxes, thanks to a wide constellation of loopholes their lobbyists have shoehorned into federal tax laws.
One example is the donate-tononprofits dodge. Most of us hear the word “nonprofit” and think Red Cross or some other familiar charity. These traditional charities fall under section 501(c)(3) of the U.S. tax code. People who donate to them can get an income tax deduction for their donations.
Other nonprofits — most notably those that come under the tax code’s section 501(c)(4) — can’t offer their donors a charitable deduction.
But these C4 nonprofits can engage in activities that have next to nothing to do with providing charitable services.
They can benefit private individuals, lobby lawmakers as much as they want and “get directly involved in politics.” In 2015, lobbyists bankrolled by the billionaire Koch family wiggled into the tax law a loophole that lets our super rich give shares of stock to C4s, without having to pay either a gift tax or a capital gains tax on the share transfer.
Thanks to this loophole, note investigative journalists Judd Legum and Tesnim Zekeria, billionaires like Charles Koch can now use their allied C4s “to spend as much money as they want on political campaigns without disclosing their spending or paying taxes.”
Shady tricks
Our current tax code abounds
in shady tricks like this C4 maneuvering, tricks that let our super wealthy take dollars that should be filling the public purse and move them into the bank accounts of “nonprofits” dedicated to doing whatever they can to keep our wealthiest ever more wealthy.
How do the rich justify this massive tax code manipulation? We simply can’t count on our government, they insist, to spend our tax dollars sensibly.
Harold Hamm, for instance, has fracked his way to a fortune now worth close to $20 billion. The thought of paying taxes outrages him almost as much as the $975 million divorce settlement eight years ago had him shelling out to his second wife.
“I haven’t seen anything,” says Hamm, “to lead me to believe that the government has done very well with the money America has already given them.”
This emphasis on “government waste” has served, over the years, to justify cutting taxes across the board, even for the wealthiest among us. But this “government waste” line seems to be losing some oomph.
One reason is the enormously wasteful spending of our rich has become considerably more conspicuous. In Los Angeles, as Mansion Global reports, the architect Paul McClean specializes in transparent-bottom “multi-level” swimming pools that give the wealthy and their house guests “the illusion of floating in the air.”
“It’s fun to see people swimming overhead,” he says. Also fun for our most fabulously fortunate: splurging on their pets with everything from $152 designer poop-bag holders and $1,100 wooden doggie bowls to $12,000 miniature playhouses. True Residential offers fridges that can run over $25,000.
More audits for the wealthy
“Most of our customers are not looking to keep up with the Joneses,” muses Chelsea McClaran, the True Residential brand manager. “They’re looking to have something that nobody’s ever seen before.”
Maybe one day we’ll be able to give they something they figured they would never ever see: an America seriously striving to become a much more equal place. That means an IRS that audits the wealthy more than it audits households with incomes low enough to qualify for the Earned Income Tax Credit.