IRS Audits Poor People Far More Often Than the Wealthy

October 11, 2019

Republicans gutted the IRS with New Democrat support. It ensured that the wealthy can cheat our nation with impunity, says Bill Black.

Republicans gutted the IRS with New Democrat support. It ensured that the wealthy can cheat our nation with impunity, says Bill Black.


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Story Transcript

RON WYDEN: I just think it’s shameful that poor folks in Humphreys County, Mississippi have the highest audit rate in America. But if you’re a high-flyer or somebody running a shell company, you’re not as likely to get audited.

MARC STEINER: Welcome to The Real News Network. I’m Marc Steiner. Good to have you with us.

If you just heard that… And when most of us hear IRS, folks cringe. They fear the possibility of an audit looming; just hate the idea–some people do–of paying taxes. So these poor women and men who work there can be so maligned, often portrayed as an evil force. So it’s easy, starting with Obama and intensifying under Trump, to slash their budgets. The IRS now–this is the kicker, what Wyden was talking about on the brief piece you just saw–are auditing more poor people than wealthy people. Folks who get income tax credits because they make such little money are being audited at obscenely high rates. It’s easier to audit them than the wealthy, they say. But what’s really happening here between the budget cuts and the IRS auditing the poor; and increasingly, wealthy people getting away with financial murder?

Bill Black, who is an associate professor of economics and law at the University of Missouri, Kansas City, White Collar Criminologist, former Financial Regulator, author of that wonderful book The Best Way to Rob a Bank Is to Own One, and of course, a regular contributor here on Real News, I’m sure has a great deal to say about this.

Bill, welcome. Good to have you with us.

BILL BLACK: Thank you.

MARC STEINER: So when you read those headlines at first, and you see these headlines and read the stories–in ProPublica and other places; Fox Business News–about the poor being the ones who are increasingly being audited, not the wealthy, not even people making $100,000 or $200,000 a year or $300,000 a year, but the poorest of the poor, what is really happening here?

BILL BLACK: So I teach public finance and I was an enforcement director and litigation director for a federal agency. So when you do your audits, when you do your enforcement actions, you don’t do them randomly. You prioritize the most serious ones, and you try to do it in a way that also will bring in the most funds from the people who have violated the law compared to the expenses. That’s what we did in the savings and loan crisis. The IRS does the opposite. And it does the opposite, not for random reasons, but because one party, the Republican Party, has decided it wants to encourage tax fraud by the wealthiest Americans. Right? So let’s cut through this-

MARC STEINER: Bill, can I just stop you? Can I stop you? Let’s really parse that out. What does that mean: “wants to allow rich folks to get away with tax fraud?” What does that mean?

BILL BLACK: It means two things. One, when we do audits correctly, and the IRS have lots of experience with this, lots of data on this, you prioritize the wealthiest people in using the kinds of deductions that are most problematic, that we have experienced are most likely to involve fraud. And when you prioritize audits in that way, you get back … In terms of bang for the buck, it isn’t that you minimize losses, you bring in vastly more than it costs you to bring those enforcement actions. In other words, enforcing the law against the rich tax cheats is enormously profitable for the IRS. Therefore, and it’s just one party, it’s the Republican Party have decided they’re going to do two things. One, they’re going to starve the IRS for resources. And two, they’re going to direct the IRS to use its resources against poor people instead of the rich people, even though when they do the audits of the poor people, they lose money, right? It costs more to do the audit than they’re going to get, the pittance they’re going to get back from the poor people.

And to pick up a point you made in the introduction; yes, the IRS has a bad reputation with the American people. Part of that’s inherent, right? But most of it is that there’ve been a series of Republican hit jobs. And shamefully, the Clinton administration actually signed onto one of these hit jobs. Well, later, the Inspector General did a report, and said, “It’s not true.” This whole congressional investigation, the trying to pillory the IRS as a bunch of devils incarnate and such, that was all BS. And the Clinton administration didn’t push back, didn’t defend its honest employees, jumped onto the Republican stuff. They changed the IRS a lot and gave the Republicans the excuse to… Remember, their goal is to “starve the beast,” as they say at the federal government. And in particular, of course, they do things primarily for the wealthy–which is their real base, not the racist base. The wealthy are the ones who actually direct Trumpian policies and congressional policies. So that’s what they’ve been doing, and they’ve been doing it for over a decade.

MARC STEINER: So I’m going to come back. But I want to watch this clip for a moment. This is the head of the IRS talking to Wyden, on the committee. This is part of his response. Let’s watch for a moment.

RON WYDEN: My question is, is it really the intent of the Internal Revenue Service to audit taxpayers who are struggling to make ends meet while increasingly letting millionaires and multinational corporations off the hook?

CHARLES RETTIG: No.

RON WYDEN: Is that the intent of the agency?

CHARLES RETTIG: No.

RON WYDEN: What are you going to do about it?

CHARLES RETTIG: We’re looking at the earned income tax credit. Part of the problem with the statistics and where you are is there’s an $18.4 billion overpayment each year associated with the earned income tax credit. We want to work with Congress, we’re going back to see every proposal that’s happened, I believe since 1975, to reduce the complexity in the credit. The majority of the issues revolve around the definition of a qualifying child.

RON WYDEN: Look. This, in my view, the stark contrast between the fact that the poorest and most vulnerable get audited more than these multimillionaires is yet more hard evidence that the tax system is stacked in favor of the wealthy. I would like you to send us a plan, the Chairman and myself, on how you’re going to turn this around. Can we have that from you within, say 30 days?

CHARLES RETTIG: You will. I’d be willing to meet with you personally this week to discuss my views on not only the earned income tax credit, but we are looking at higher-end taxpayers as well.

RON WYDEN: I’d like to have it in writing. I’m over my time. I’d like it within 30 days.

MARC STEINER: So what’s reality here? I mean, one of the things that, of course, basically they were saying it’s easier to audit somebody poor than to spend all the money it would take to audit people who are wealthy and have people to defend them. I mean, so talk about what this reality says. Plus, dealing with the fact that the numbers of people working at the IRS, as I said earlier, has gone down. They’ve whittled that agency away a bit. So how do those things interplay?

BILL BLACK: Not a bit. They have systematically hamstrung the agency to produce precisely this result of allowing the worst rich people… Remember, there are tons of very honest Americans who are wealthy, who pay their taxes. It’s a minority, but it’s a significant group of the wealthy that decide, “Hey, I’d like to be even wealthier. And the best way to do that is cheat.” And they almost always have the benefit of tax attorneys and other accounting tax experts. In contrast, the earned income tax credit is our only significant tax program for the working poor. And indeed, it creates our closest thing we have to a negative income tax for a smaller group of people. The earned income tax credit–having had one of our kids file for it–is ludicrously complex. All because we’re afraid that 12 bucks might go to the so-called “deserving poor.” These are working people, right? They work full-time and they get $15,000 a year, or $12,000 a year and such. And we give them a tiny bit of money back in response to that. And we are so, “Oh my God, we must not have somebody get 12 bucks.”

And then we make a system so complex that nobody knows how to fill out the damn forms, right? It’s really complex. And the people who do the earned income tax credit have no attorneys. They have no tax preparers, right? You can’t make money off of these things because they’re so poor. So it’s just ridiculous. And of course, who are the world’s experts on this? The IRS. So that head of IRS knows exactly what’s going on. This is all a BS explanation. It has truth like any good BS story has, but he could turn the resources right now towards the wealthy. But this is the new Trump administration. Does anybody in the world expect the Trump IRS to go after wealthy tax cheats? I mean, the president is a wealthy tax cheat. His family is filled with wealthy tax cheats. Read The New York Time expose. I mean, dozens and dozens of pages they go through. This isn’t a one-off. This is decades. This is their entire life. This is what they do. They cheat on taxes. There is no way the IRS is going to crack down on tax cheaters in the most corrupt administration in the history of the United States.

MARC STEINER: I never thought talking about the IRS could be so much fun. So let me close with this–

BILL BLACK: How did Wyden keep a straight face and say, “I want a plan within 30 days?”

MARC STEINER: So I definitely want to close with two things. I really want to respond to the intersection of this idea and really explain it a bit in the short time we have left, about how you assert that Republicans and other allies of theirs constructed this system so the rich could get away with murder in terms of money. I want you, a), to talk a bit about what that means.

BILL BLACK: Sure.

MARC STEINER: And how that happened. And b), the cutting of the budget for the IRS has happened under everybody’s administration, including Obama’s, and got worse under Trump. But it’s not just Republicans who did that.

BILL BLACK: No. Again, Republicans led it. But the shame of the New Democrats, and the New Democrats include, of course, the Clintons–

MARC STEINER: Yes.

BILL BLACK: And President Obama went in front of the New Democrat Coalition as soon as he was elected president, and said, “I’m your guy. I’m a New Democrat. So their thing is: the government’s the problem. They have bought into that fundamental Republican lie that the government is the problem and rich people are the solution. But, even within that, there are huge differences, right? The Obama administration was not Corrupt in this capital “C” sense. Yes, it went along with far too many things. And as we speak, Krugman has a column about the insanity of the Democratic so-called “center,” where it simply fails to come to grips with the fact that the Republican Party doesn’t have any moral substance anymore; that it really isn’t just a party for the rich, it’s a party for the corrupt. And that’s a major difference. And in criminology, this stuff has a term, it’s called “system’s incapacity,” where you deliberately make the system incapable of stopping the crimes. So that’s exactly what they’re doing.

And they’re not just doing it in the IRS. They have been doing it to the Securities and Exchange Commission and the Commodity Futures Trading Commission. And it’s always the Republicans in the House slashing the budgets, so that, for example, after the Flash Crash, which some people may remember, when the market just absolutely tanked within literally 12 minutes, massively, as all these trading programs kicked in and fought off against each other. And somebody at the beginning manipulated this whole process. At the end of it, the SEC and the CFTC said, “You know what, we don’t have the computer capacity, even after the fact, to research and find what happened.” We need budget so that we can able to get into the 21st century on this type of stuff. Right? And the House deliberately, at the insistence of the Republicans, refuse to allow that to happen because they want us to be vulnerable to those kinds of rich cheats. The rich cheats are their real base, not the folks with the MAGA hats.

MARC STEINER: And the poor people pay the price.

BILL BLACK: And all of us pay the price. But, yes, they particularly love targeting the poor.

MARC STEINER: Bill Black, I have a ton of other questions. I’m going to have to save it for another day though. But there’s a lot to probe here. And I appreciate your work, your humor, and your insight. Thanks for joining us once again.

BILL BLACK: Thank you.

MARC STEINER: Always good to talk to you. And I’m Marc Steiner here for The Real News Network. Good to have you with us. Take care.