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Editorial: The IRS gets back on its feet. Time to crack down on wealthy cheaters

Chicago Tribune Editorial Board, Chicago Tribune on

Published in Op Eds

Abraham Kiswani headed a thriving security firm in the Chicago suburbs when he had the bright idea to stop issuing himself payroll checks and instead issue checks that were falsely labeled “subcontracted services.” He then proceeded to underreport nearly $10 million in income, shortchanging Uncle Sam and the state by about $3.7 million in tax revenues.

The tax police finally caught up with him, and the 54-year-old Burbank resident is preparing to serve a two-year prison sentence after pleading guilty to criminal charges. But many other tax cheats just like him have gotten away with their misconduct, mainly because the Internal Revenue Service has lacked the resources to enforce the tax code. In 2021, the most recent data available, Americans failed to pay some $688 billion in taxes they owed.

Now, finally, the IRS is starting to get its act together, to the dismay of tax criminals and their misguided enablers in Congress who never miss a chance to bash an agency that everyone loves to hate.

The IRS is preparing to increase audits by more than 50% on taxpayers with incomes of more than $10 million and to triple audit rates on corporations with assets of more than $250 million. Partnerships with iffy balance sheets will finally start to get some overdue scrutiny, too.

After more than a decade of budget cuts that gutted the agency, its funding got a boost in the Inflation Reduction Act, and the rebuilding now underway promises to sharply increase tax revenues.

The return on investment should be enormous. The new law initially gave the agency nearly $80 billion in supplemental funding through 2031. A recent Treasury Department analysis shows that extra money translates into increased collection of overdue and unpaid taxes of $561 billion. That’s a sevenfold return in a decade.

At the same time, the General Assembly in Springfield also stands to get a good return on the IRS investment, as stronger federal enforcement almost always leads to increased collection of taxes owed to states as well.

Bear in mind we’re not talking about new taxes, but rather requiring people to pay what they owe. It’s mind-boggling to hear that the IRS is just getting around to sending 125,000 letters to people making more than $400,000 a year who haven’t filed their income taxes since at least 2017.

We understand that no one likes paying taxes. But the tax system today provides large-scale opportunities for tax evasion to the highest-income individuals, big corporations and complex partnerships, while many everyday wage earners, including wealthy ones, are much more readily tracked. Giving the IRS its teeth again will help to restore fairness.

Opposition is intensifying. Some Republicans in Congress have made re-gutting the agency a top priority. About $1.4 billion of Inflation Reduction Act funding was rescinded as part of the debt ceiling negotiations last summer. Another $20 billion will be cut or repurposed as part of the agreement last June between the White House and then-House Speaker Kevin McCarthy to suspend the debt limit and cap federal spending. In January, while threatening a government shutdown, Republicans insisted on speeding up those cuts.

 

Whether intentionally or not, those opposed to meaningful tax enforcement are promoting corruption.

IRS opponents in the GOP claim they want to protect small businesses and the middle class from being targeted by agency auditors. In fact, the IRS has pledged again and again that it is committed to shielding households earning less than $400,000 a year from an increase in audit rates.

Let’s face it. Some wealthy people who benefit financially from a weak IRS want it to stay that way. To some, cheating on taxes is a sophisticated, high-stakes game, and, as the hundreds of millions in uncollected taxes every year indicates, the cheaters have been getting away with it. That is grossly unfair to the many law-abiding citizens who pay their taxes.

Cutting IRS funding is counterproductive for other reasons too. In fact, most of the agency’s additional spending to date has been aimed at replacing antiquated technology and improving abysmal service levels. For years, the agency was so poorly staffed that it couldn’t even pick up its phones during tax time to answer basic questions from the public. This year, it did much better, but that could change if its funding is slashed again in the future.

Both major political parties evidently have concluded that responsible fiscal policy does not pay off at the ballot box. Since the early 2000s, profligacy has ruled. Despite an economy that by most measures is strong, the federal government still is spending roughly $2 trillion more per year than it is raising in revenues, while keeping the federal tax burden far lower than in other rich countries. That’s unsustainable.

Collecting the tax revenues that our government is owed won’t close that gap, and it’s no substitute for a return to fiscal sanity, but surely, it’s the least that can be done.

The alternative is to allow the Abraham Kiswanis of the world to blow off their obligations and scoff at upstanding, hardworking Americans who pay their taxes, as patriotic duty and the law requires.

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©2024 Chicago Tribune. Visit at chicagotribune.com. Distributed by Tribune Content Agency, LLC.

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