Patterico's Pontifications

9/9/2024

Democrats Spend Dollars to Recoup Dimes

Filed under: General — JVW @ 6:49 am

[guest post by JVW]

Remember the Democrats demanding that $80 billion in additional money be allocated to the IRS over a ten-year period so that all of those super-wealthy tax-cheats can be tacked down and forced “to pay their fair share”? They got most of what they wanted in the end, and despite the Biden Administration’s claims that the money would be used for technology modernization and for “taxpayer services,” over half the money ($45.6 billion) went to “tax enforcement” (read: hiring new agents, lawyers, and bureaucrats) and another huge chunk ($25.3 billion) went to “general operations” (read: new office buildings, travel budgets, etc.).

But hey, at least the IRS recouped tens of billions of dollars in the first couple of years, suggesting that this program will pay for itself in short order, right? Yeah, not so much:

The IRS in February 2024 launched an initiative to pursue 125,000 high-income, high-wealth taxpayers who have not filed taxes since 2017. [. . .] In the first six months of this initiative, nearly 21,000 of these wealthy taxpayers have filed, leading to $172 million in taxes being paid.

The IRS in the fall of 2023 launched a new initiative using Inflation Reduction Act funding to pursue high-income, high-wealth individuals who have failed to pay recognized tax debt, with dozens of senior employees assigned to these cases. This work is concentrated on taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt. The IRS was previously unable to collect from these individuals due to a lack of resources. After successfully collecting $38 million from more than 175 high-income, high-wealth individuals last year, the IRS expanded this effort last fall to around 1,600 additional high-income, high-wealth individuals. Nearly 80% of these 1,600 millionaires with delinquent tax debt have now made a payment, leading to over $1.1 billion recovered. This is an additional $100 million just since July, when Treasury and IRS announced reaching the $1 billion milestone.

So there you have it: in the first year this $80 billion “investment” over ten years has yielded gains of about $1.3 billion. Let’s say that number manages to grow at a robust 35% annually in years 2 through 10. That would only yield a net ten-year return of $76 billion, still below the money allocated for this ridiculous undertaking. And who among us expects the amount recouped to grow by 35% a year for a whole decade?

Democrats of course pinky-promised that this initiative would only apply to those with annual incomes of over $400,000 per year. How long do you think it will be until the IRS, desperate to justify the huge windfall which thus far has failed to show any kind of return on investment, will start going after the taxpayers making over $250,000 and, if they can get away with it, eventually pretty much anyone making $100,000 or even less?

And so the next ridiculous promise from the donkey party is to tax unrealized gains. But honestly, dear taxpayer, we are only gonna do that for the very rich, so those of you middle class folks who through years of careful budgeting and avoiding frivolous purchases may have built yourself a nice little portfolio have nothing to worry about. For now.

In our insipid political climate, both sides are proposing middle class tax “relief” and expanded child credits, with no real plan for dealing with our continuing annual $2 trillion deficits and $35 trillion federal debt. One side insists that these tax cuts will unlock so much economic activity that they will pay for themselves; the other side claims that they can offset the cost of these tax cuts by making others back-fill the sums. Both of them are full of bullstuff.

– JVW

Comments (28)

28 Responses to “Democrats Spend Dollars to Recoup Dimes”

“Both of them are full of bullstuff.”

– JVW

So true.

Unfortunately, we’re looking at a disasters crash… probably in our lifetime.

Unless we get a popular Javier Milei, with like minded congressional critters… who am I kidding? lol!
whembly (477db6) — 9/9/2024 @ 8:04 am
The moment that a bill to tax unrealized gains appears to have the votes to pass, the stock market will drop 30% and 2008 will look like a happy memory. When the answer to “Please invest” is “Why should I?” all those rich people will avoid risk and buy Treasury bills, getting minimal interest and risking nothing.

Oh, wait, I see the real motive right there.
Kevin M (a9545f) — 9/9/2024 @ 10:12 am
The moment that a bill to tax unrealized gains appears to have the votes to pass, the stock market will drop 30% and 2008 will look like a happy memory.

Well sure, but at least that nasty Elon Musk will be taken down a peg, right? Right?
JVW (642dd6) — 9/9/2024 @ 11:53 am
Of course, Republicans in Congress think recouping any unpaid taxes is too much.
Rip Murdock (aa6621) — 9/9/2024 @ 12:02 pm
Of course, Republicans in Congress think recouping any unpaid taxes is too much.

Upon what premise do you base that weird assertion, Rip, other than your dislike of the current Republican party? Weren’t Republicans the ones holding the IRS’s feet to the fire as they tried to let Hunter Biden skate by without paying his tax obligations? And wasn’t it Democrats who consistently came to the defense of young Hunter, who makes well in excess of $400,000 per year?
JVW (3bcf1d) — 9/9/2024 @ 12:15 pm
JVW

I would think it would take a few years befre the IRS would be able to start recouping big money, since it takes a while to do the audit, issue the audit letters, and wind through the process. You would need the folks in place first, then target the appropriate billionaires. So, while you have a point, I don’t think a straight line interpolation will give you the expected revenue.

Maybe the CBO analyzed this provision and gave their projection of the results. Love to see how current results compared.
Appalled (f86cbd) — 9/9/2024 @ 12:25 pm
I would think it would take a few years befre the IRS would be able to start recouping big money, since it takes a while to do the audit, issue the audit letters, and wind through the process.

That could explain the difference between these results, and what seems to be generally acknowledged – that having more audits raises money for the government.
Sammy Finkelman (e4ef09) — 9/9/2024 @ 12:41 pm
You would need the folks in place first, then target the appropriate billionaires. So, while you have a point, I don’t think a straight line interpolation will give you the expected revenue.

Again, recouped revenue will have to grow at an average rate of 36% per year for the next nine years just to break even. Do you honestly believe that there are that many multi-millionaires who are ducking their taxes — as opposed to taking the aggravating but perfectly legal tax breaks that our foolish Congress creates for them — to suddenly yield $80 billion by 2034?

The money that was recouped over the past year seems to represent the low-hanging fruit: the filers who the IRS already knew had outstanding tax debt. That was 1,600 filers who together scraped together $1.3 billion in back taxes, or an average of $812,000 per person. That ain’t chicken feed to be sure, but how likely is it that among the other remaining over 1.5 million filers who are part of the vaunted 1% of income earners (in this case returns reporting at least $548,000 in income) the IRS is going to find enough tax cheats to make up the remaining $78.7 billion?

We have to assume that many of these super-wealthy people hire very expensive tax lawyers and experienced accountants (many of whom have worked in the past for the IRS), and at a bare minimum they would tie-up any delinquency cases in the court system for years and years, thus incurring even greater expenses for the IRS unless they end up proactively surrendering. I’m as cynical about human nature as a guy can get, but even I don’t see the IRS recouping enough to cover not only the $80 billion in additional expenses, but then continue to fund the expanded IRS after the supplemental funding theoretically expires (though we all know that funding for “ten-year” government initiatives never really expires, it gets permanently baked into future budgets).
JVW (3bcf1d) — 9/9/2024 @ 12:53 pm
I heard that he proposal to make tips tax free started because the IRS was about to launch an audit program for tips. (although in any case,most tips in businesses are documented because they are not given in cash. But then, that was like a tax increase on relatively low paid workers)

https://www.reddit.com/r/economy/comments/195gro0/irs_announces_plan_to_crack_down_on_tipped

https://reason.com/2023/02/10/irs-announces-plans-to-raid-the-tip-jar

IRS Plans To Raid Workers’ Tip Jars

A coming crackdown on $1.6 billion in unreported tips will continue the IRS’ long and ugly history of targeting low-income Americans.

Eric Boehm | 2.10.2023 11:30 AM

When President Joe Biden signed the Inflation Reduction Act last year, the White House touted how the bill’s $80 billion in new funding for the IRS would “make our tax code fairer by cracking down on millionaires, billionaires, and corporations that evade their obligations.”

It now appears that some of those resources—and some of the coming crackdown on tax evasion—will, quite predictably, be aimed at individuals earning considerably less.

This week, the Treasury Department and IRS announced plans to overhaul existing programs that track tips earned by service sector workers. The new Service Industry Tip Compliance Agreement (SITCA) program will “take advantage of advancements in point-of-sale, time and attendance systems, and electronic payment settlement methods to improve tip reporting compliance,” according to the IRS.

Of course, workers who earn more than $20 in monthly tips are already required to report their tips to their employers, and those tips are supposed to be included in tax data sent to the IRS.

But a lot of that money never finds its way into the government’s hands. As part of the announcement on Monday, the IRS highlighted a 2018 Treasury Inspector General report that estimated $1.66 billion in tips went unreported during the 2016 tax year.

The IRS’ proposal “streamlines both compliance with and enforcement of tip reporting requirements by eliminating employee participation,” according to the notice published this week. Translation: We’ll make sure the government gets its cut of those tips by simply removing workers from the transaction whenever possible.

That’s something that the IRS can do now that so many tips are handled electronically, as secondary transactions after you buy a cup of coffee or pay your bar tab with a credit card. (So here’s a tip: Use cash to thank a service worker whenever possible.)

The new SITCA program is not yet in place, and still has to work its way through the complicated federal approval process. The IRS will be collecting comments on the proposal until May 7. It could also be affected by a House-passed bill to rescind the new IRS funding included in last year’s Inflation Reduction Act, though that proposal seems unlikely to pass the Democratic-controlled Senate or get Biden’s signature.

That the IRS is going to use at least some of its new resources to go after workers’ tips shouldn’t come as too much of a surprise—despite all of the promises from Biden and top IRS officials about how no one earning less than $400,000 would be targeted. As Reason’s Liz Wolfe reported in January, low-income taxpayers have always been the ones most likely to get hassled by IRS audits. In fact, during 2022, low-income wage-earners who qualified for the earned income tax credit were five times more likely to be audited than any other taxpayers, according to a report by Syracuse University’s Transactional Records Access Clearinghouse.

It also fits snugly within the Biden administration’s plans for a “comprehensive financial account reporting regime” that the Treasury Department outlined in 2021 with a promise to significantly increase the cost of tax evasion.

As far as the IRS’ incentives go, targeting the working poor makes perfect sense. Wealthier Americans have the resources to fight back against an audit—but there might be $1.6 billion in unreported tips out there, and most of that was probably collected by people who don’t have an accountant on retainer.
Sammy Finkelman (e4ef09) — 9/9/2024 @ 12:53 pm
I mean once in a great while the IRS will stumble across a politically-connected crackhead tax cheat whose money came in from sketchy overseas dealings and get maybe $1.5 million from him, but that’s a one-time windfall. The IRS doesn’t get to get an additional $1.5 million from that politically-connected crackhead tax cheat going forward, so they have to assume (or at the very least hope) that they stumble across another politically-connected crackhead tax cheat in order to legitimize this huge budgetary expansion. I’m just not at all confident it is anywhere in the realm of feasibility.
JVW (3bcf1d) — 9/9/2024 @ 12:59 pm
JVW (3bcf1d) — 9/9/2024 @ 12:53 pm

unless they end up proactively surrendering.

Donald Trump used to do that -he’d deliberately take deductions or other tax return positions that lowered his taxes, with the intent of giving them away, with the idea that an IRS auditor might be happy to end an audit with a “victory” that would go on his record and stop the audit without resolving more beneficial to himself claims.

Or maybe that was his father, Fred Trump’s, idea. I read this somewhere.
Sammy Finkelman (e4ef09) — 9/9/2024 @ 1:01 pm
Back of my envelope says $1.1 billion pays for a little over an hour of federal spending. Current rate is $787m/h.
Sierra (589647) — 9/9/2024 @ 1:02 pm
Of course, Republicans in Congress think recouping any unpaid taxes is too much.

Upon what premise do you base that weird assertion, Rip, other than your dislike of the current Republican party? Weren’t Republicans the ones holding the IRS’s feet to the fire as they tried to let Hunter Biden skate by without paying his tax obligations? And wasn’t it Democrats who consistently came to the defense of young Hunter, who makes well in excess of $400,000 per year?

JVW (3bcf1d) — 9/9/2024 @ 12:15 pm

Republicans have consistently supported defunding IRS enforcement activities, as well as programs that benefit middle and low income tax filers. The CBO has estimated the budgetary effects of IRS recessions will reduce revenues and increase the deficit by billions.

A $5 billion rescission would reduce revenues by $5.2 billion over the 2024–2034 period and increase the cumulative deficit for that period by $0.2 billion.

A $20 billion rescission would reduce revenues by $44 billion and increase the cumulative deficit by $24 billion.

A $35 billion rescission would reduce revenues by $89 billion and increase the cumulative deficit by $54 billion.

I’m not sure why Hunter Biden’s tax crimes have any relevance to the fact that Republicans overall want to reduce IRS enforcement activities.

Also, given the fact that current House Republican leadership is barreling toward another government shutdown (by attaching legislation that is purely performance art), why should they be cut any slack?
Rip Murdock (d2a2a8) — 9/9/2024 @ 1:12 pm
Upon what premise do you base that weird assertion, Rip, other than your dislike of the current Republican party?

Rip is a curmudgeon. He dislikes everything.
Kevin M (a9545f) — 9/9/2024 @ 2:20 pm
That could explain the difference between these results, and what seems to be generally acknowledged – that having more audits raises money for the government.

But does it raise enough to pay for the auditors?
Kevin M (a9545f) — 9/9/2024 @ 2:21 pm
Do you honestly believe that there are that many multi-millionaires who are ducking their taxes

Other than Colombian drug dealers and the like, who are committing worse crimes and getting away with them. It would be cheaper to conquer the Cayman Islands and open their books.
Kevin M (a9545f) — 9/9/2024 @ 2:23 pm
What ever money the IRS collects from the rich will mean they have less money to spend doing evil things like buying politicians and influence.
asset (f17574) — 9/9/2024 @ 2:24 pm
although in any case,most tips in businesses are documented because they are not given in cash

You need to get out more. Many people only tip in cash, as tipping electronically means the money goes to other people, and not just the IRS.
Kevin M (a9545f) — 9/9/2024 @ 2:25 pm
The CBO appears to largely base its estimates of revenue that will be generated on past performance of IRS increases. In other words, they are saying that because in years past the return on investment for increases in IRS enforcement are around $5 for every $1 spent, it stands to follow that this pattern will hold this time around too. But that doesn’t take into account the fact that this new law was specifically predicated around the top 1% of tax filers, not the general public, and that it might be far more difficult to extract dollars from people who are protected by very expensive tax lawyers and accountants.

And God bless the CBO, but as it very often acknowledges, it doesn’t always get the projections right. Here is what they said about Fiscal Year 2023:

* Revenues. CBO’s projection of $4.9 trillion for federal revenues in 2023 was too high—by $0.5 trillion, or 11 percent. That difference was roughly twice the average absolute error of about 6 percent in CBO’s revenue projections for 1983 to 2022.

* Outlays. CBO’s projection of $5.9 trillion for federal outlays in 2023 was too low—by $0.6 trillion, or 9 percent. That difference was more than four times the average absolute error of 2 percent in outlay projections for 1993 to 2022.

* Deficit. Because of the differences between projected and actual revenues and outlays, CBO’s deficit projection of $1.0 trillion for 2023 was $1.0 trillion less than the actual amount. That difference was equal to 3.9 percent of gross domestic product (GDP)—more than three-and-a-half times the average absolute error of 1.1 percent of GDP in the agency’s deficit projections for 1985 to 2022.

So they took an overly-rosy picture of the budget provided to them by a Democrat White House and a Democrat Congress, and missed the deficit projection by a trillion dollars. Whoops.

The CBO calculated that the Democrats’ IRS bill would raise an additional $200 billion in revenue over the ten-year period easily outpacing the $80 billion cost of the initiative. OK. But what did the CBO estimate for the first year revenue boost? Of that we have no idea, but we do get a glimpse of the the CBO’s thinking:

First, CBO expects the IRS to prioritize the enforcement activities that it thinks will have the highest average return; additional enforcement spending would therefore have lower returns than previous spending. Second, CBO expects taxpayers to adapt to the IRS’s enforcement activities and adopt new ways of evading detection, so an enforcement activity may have a lower return in later years. Finally, the productivity of the IRS’s enforcement activities will also depend on the IRS’s other capabilities. For example, modernized information technology that stored all of a taxpayer’s information in digital form could increase the productivity of examiners (the employees who detect taxpayers’ noncompliance).

CBO’s estimate of revenues also accounts for the timing of collections resulting from enforcement activity by new hires. Taxes are assessed at the end of an audit; if taxpayers disagree with the assessment, they can appeal and continue to litigate. The length of each step depends on the complexity of the case. CBO estimates that an audit of medium complexity would take 24 months to complete. That time, combined with the expected training time for an experienced new hire, suggests that the IRS would begin to collect revenues 30 months after the new hire joined the agency. (The timing would be longer when cases were more complex or when the taxpayer did not agree to the assessment and appealed.)

So to summarize my cynicism, let me make two points:

1. The CBO built their revenue models based upon data and assumptions from the IRS, the very organization which stood to benefit from the increased spending. I don’t think they can be considered a credible and neutral arbiter here, not unless there are IRS employees who stand to lose their jobs if their projections are wrong.

2. I seriously doubt that the CBO expected the “ROI” to be a measly $1.3 billion after the first year of the program, and considering that they forecasted that the program would reach its peak ROI in the first few years (“low-hanging fruit” as I wrote earlier) then we’re going to have to hope and pray that we see $20+ billion increases by 2027 and that they hold going forward. I think at this point the CBO’s projection of $200 billion in additional revenue is out the window and we just have to hope that it can break even, though given that this involves hiring new federal employees the ongoing rising costs will almost certainly outstrip revenue increases sooner rather than later.
JVW (3bcf1d) — 9/9/2024 @ 2:26 pm
Republicans have consistently supported defunding IRS enforcement activities

Think “Lois Lerner” and “enforcement” actions that targeted Tea Party groups.
Kevin M (a9545f) — 9/9/2024 @ 2:27 pm
What ever money the IRS collects from the rich will mean they have less money to spend doing evil things like buying politicians and influence.

Lowering the prices for politicians and influence paid by good people?
Kevin M (a9545f) — 9/9/2024 @ 2:29 pm
Rip is a curmudgeon. He dislikes everything.

Kevin M (a9545f) — 9/9/2024 @ 2:20 pm

There are a lot of things I like, but almost all have nothing to do with politics.
Rip Murdock (d2a2a8) — 9/9/2024 @ 2:50 pm
What ever money the IRS collects from the rich will mean they have less money to spend doing evil things like buying politicians and influence.

Or funding research, or providing scholarships, or hiring people, or donating to charitable foundations, or doing hundreds of other worthy things.

But we get it, asset. Like your pal Comrade Bernie Sanders you would rather see a nation in which only thousands get rich but millions starve, rather than a nation in which millions get rich but only thousands starve.
JVW (34f064) — 9/9/2024 @ 8:31 pm
@21 voters.
asset (241e24) — 9/9/2024 @ 8:42 pm
Rip is a curmudgeon. He dislikes everything.

Kevin M (a9545f) — 9/9/2024 @ 2:20 pm

LOL! Talk about the pot calling the kettle black. 🤣🤣🤣🤣
Rip Murdock (d2a2a8) — 9/10/2024 @ 9:12 am
Hi JVW at #19

That was interesting. Thank you.
Appalled (722393) — 9/10/2024 @ 10:56 am
JVW (3bcf1d) — 9/9/2024 @ 2:26 pm

While “interesting” the analysis does nothing to dispel the fact the Congressional Republicans want a weak IRS and to reduce its enforcement activities.
Rip Murdock (d2a2a8) — 9/10/2024 @ 11:01 am
Better breakdown of the funds (from https://crsreports.congress.gov/product/pdf/IN/IN11977):

Enforcement (agents, legal support, investigation technology. Also expands to monitor/enforce cryptocurrency taxes): +$45.64 billion
Operations Support (rent, facilities, printing, postage, security, telecom/IT, and research): +$25.33 billion
Business System Modernization (upgrade of admin systems for taxpayer services, operations, cybersecurity) +$4.75 billion
Taxpayer Services(filing and account services, prefiling assistance, tax education, free e-filing system) +$3.18 billion

Adjust accordingly.
Sam G (87ab56) — 9/10/2024 @ 11:33 am

9/9/2024

Democrats Spend Dollars to Recoup Dimes

28 Responses to “Democrats Spend Dollars to Recoup Dimes”

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