As one of the resident right-of-center folks who comment, I feel the need to register my strong agreement with everything in this column. I think Matt hit all the right points and the increase in IRS funding is the best part of the recently-passed bill.
The included table could just as easily be titled "Respect for the Rule of Law", with the leaders at the bottom of the table. If we ever open up our immigration laws to allow more people into the USA, I would like to see us prioritize people from the countries with high tax compliance.
Seems like a silly thing to worry about. Especially when we have actually useful information about the specific immigrant (years of education, criminal background check, whatever else you want to ask).
The word profiling seems to capture more and more space. Can employers profile on the basis of education? Can they profile on the basis of past experience?
People use the word profile because they know it has a negative perception and if they get it to stick to you then you lose the debate. Regime is this kind of word. There are many others.
Not true, education is influenced by many factors that are outside the control of an individual. Intelligence, wealth, family structure, etc. Education then influences experience (which can also be outside one’s control due to things like social capital).
He's got a drum. It's more than a bit broken, no one likes the sound it makes, and we all wish he'd throw it away, but he is damned well going to keep beating on that freaking thing.
The problem is that there are no arguments except shitty analogies.
Even sociology, as left-leaning of a field as exists short of gender studies or education studies, has extensive evidence and research on the topic of imagined community. Without a nation-state to wrap up a measure of self-worth in, no one gives a good goddamn about anyone else except for their families and *maybe* extended clan structures. About the *best* you can do under those circumstances is China, where there is no social fabric, nothing resembling genuine patriotism, but a strong government enforces a very wide-ranging legal code in draconian fashion, which kinda sorta keeps people from abusing the shit out of one another. Not well though.
So anyone who keeps telling me the nation-state isn't important or is a form of racism can go find a broomstick to sit on, because I like living in a first world nation and not a clan-centric, war-torn shithole.
John Rawls' 'Veil of Ignorance'. On the other hand, I do believe culture matters, norms matter and we as Americans have a legitimate interest in whether people arriving here from other societies share our norms. This isn't judging people by their skin; it's judging them by what they've been taught by their society, the attack on Salman Rushdie at Chautauqua only the most recent example. If you were born in South Sudan, we can all agree you should be treated as an individual, but we're also likely to suspect you're a religious bigot inclined to kill people who disagree with you. Humans are very good at pattern recognition, and many of us have come to recognize a pattern of bigotry going back thousands of years to the crescent between South Sudan and India.
MattY gives a perfect example of why this is extreme technocratic folly. The tax compliance police state required to peer into his soul and accurately quantify how much of his trip to Italy should or shouldn't qualify as a business expense is a nightmarish fever dream. The tax code is both deliberately and incompetently designed to obfuscate compliance and reward creative avoidance. Matt's desire to pay more taxes without feeling like a sucker is totally incompatible with a system designed from the ground up as a manipulative cat and mouse game of half baked policy goals.
The sort of coherent rigorous enforcement that would obviously be preferable is only a positive in a world where tax burdens are obvious and transparent for everyone and compliance is simple and without breaks, shelters, loopholes, incentives, penalties, deductions, etc etc etc.
You have no idea what you’re talking about. Matt’s example is the heart of tax evasion - people and families getting into the habit of “charging it to the business.”
You're dodging the point though... How deeply into a MattY's life would an IRS agent have to dig to accurately assess just the right amount of deductible expenses he could legally claim for his trip to Italy? The degree of personal surveillance would be enormous, because the things we do or do not expect a business like Matt's to be paying taxes on in the tax code is total nonsense.
If Matt claims it's a deduction then he gets it, because the IRS probably won't come looking and even if they did they'd probably let it slide. Or maybe he's unlucky and gets pulled up randomly, or has an agent assigned to his file that really didn't appreciate him signing the Harper's letter and suddenly he's in for years of harassments and legal and financial nightmares.
And that's how it works because the resources required to actually surveille everyone all the time in detail to ensure the necessary level of compliance fairly and universally would be truly incomprehensibly enormous.
To say nothing of the civil rights implications of it all.
Also ignoring that the code is intentionally riddled with loopholes to enable avoidance by the politicians because the the code is absolutely not actually written or intended to be rigorously complied with by everyone.
It’s not about loopholes that’s propaganda. But rather than use the vacation example, how about a guy with a sheet metal fabrication business makes a Home Depot run because the warehouse needs a new water heater. While there, he gets a bunch of stuff for his home and bills it all to the business.
The level of surveillance necessary for robust enforcement is about the complexity of the loopholes. I'm not suggesting that fraud doesn't exist. I'm saying it exists because the busted code covers for it in ways that make truly robust enforcement untenable.
That’s simply not true. It’s mostly just plain fraud. The business buys a new F150. That’s a totally legitimate business expense. The issue is the owner lets his 17 year old son use it exclusively. In the process saving thousands in taxes.
You’re at Home Depot to buy a new water heater for your home. Do you pull out your personal Amex or the business Amex?
travel requires documentation to be deductible (IRC § 274). so the auditor would probably look at what you deducted as travel expense, ask for the receipt, and call it a day.
as for why matt would get selected for audit in the first place, the answer is probably more statistics than surveillance. the discriminant function system probably thought something on his return looked weird compared to other folks in similar industries.
How about just not abusing the system? All systems are ultimately based on trust. If you're moderate and modest in your use of these "loopholes" you'll probably be just fine.
This system is all about manipulating policy ends and behaviors through incentives and loopholes that all assume one is doing their best to minimize their tax burden. Abusing gray areas is the cost of doing policy through tax code.
"Doing their best" is one way of putting it. "Doing their worst" is another.
Abusing gray areas as a cost of the system makes it sound abstract and passive; it's people making decisions and I'd like to see them make different decisions.
I think you are creating a straw man. Yes, to try and catch every single improver deduction would require ubiquitous surveillance which is exactly why it is not done that way. Instead you select (using a mix of random sampling and heuristics for identifying "suspicious" deductions) a subset of returns and audit them. If MattY deducts the full cost of his trip to Italy then he runs the risk of being audited. If he is, then he has to justify all the individual expenses as business expenses. Ok, he talked to some guy and wrote an article based on that. Does that justify deducting plane fare for his entire family? No "surveillance" is required. Only the burden to keep accurate financial records for your business (especially as it relates to tax deductions).
I'm honestly not clear on what you think is the correct position here? That nobody should ever be audited? That the number of people being audited now is the correct amount? If you think we have the right level of enforcement now then why doesn't the same argument apply to the status quo? If you think nobody should ever be audited then how do you imagine the government actually should collect taxes?
And also let's be clear about what the stakes are here. It's not like if you get audited and they determine that you made an improper deduction you get sent to prison for 10 years. You pay what you owe plus a modest penalty and it's done.
I don't think having the stakes be lower means it's okay to dispense with the legal principle of innocent until proven guilty. That tradition exists even in criminal trials with lower stakes than the taxes under dispute in an audit. The tradition should be extended to IRS audits. If a deduction is being disputed, the burden should be on the IRS to prove it was improper, not on the taxpayer to prove it was proper.
If that makes it harder for the government to collect taxes, maybe it should develop a more manageable tax system.
You are innocent until proven guilty. No back taxes are collected or fines assessed unless it is determined you have claimed improper deductions.
The burden of proof is on the IRS, but just like in any civil or criminal proceeding the government can force you to turn over evidence as part of making it's case and you have the right to defend yourself by showing the evidence is not sufficient to show your liability or guilt. This is all very normal.
Agreed. I think the fact that the GOP so strongly opposes this is evidence of how they are no longer interested in being the party of law and order. Now they want to also abolish the FBI. Shameful. Republicans, stop making me be a Democrat.
I wouldn't go that high -- anything can happen. I would guess probably 75-80%. Admittedly I live in a mostly Republican county, but he is insanely popular among the folks I know.
His continued flights out of state to campaign for extremists is going to get him in trouble. It's going to be easy to run the "Ron doesn't want to govern Florida, he wants to run for POTUS" campaign.
I don't know how much the governor's race correlates with the Senate race there despite both being statewide races, but 538 has Rubio at 85%, so your percentage sounds about right from an outsider. Wish they had more data to crunch governors' races effectively.
The IRS/police analogy is not a great one. Citizens enjoy *much* stronger due process protections when dealing with police than they do with the IRS. The police are not entitled to come into my house and rummage around in hopes of finding evidence of wrongdoing; nor can they require me to make detailed, costly reports of my whereabouts with enormous penalties for even inadvertent noncompliance.
Of course taxes are the cost we pay for civilization. But America tries to do far too much with its income tax, and the result is a complex nightmare that terrifies even honest taxpayers.
My understanding (and seemingly confirmed by some quick googling) is that underpayment penalties are fairly modest. Only deliberate tax cheats risk significant consequences. Is there something you can point to that suggests otherwise?
Matt is clearly talking about deliberate tax avoidance efforts that are not taken in good faith. For example, as a kid, a small business owner paid me half in cash and half on the books. Conversations I’ve had with others confirm that this is fairly widespread. In the aggregate it can be a significant drain on public resources. And those business owners obviously know they are breaking the law.
If you want an example of an area that carries stiff penalties merely for failing to comply with complex reporting requirements - even without underpayment of tax - look at requirements that touch on international tax such as the FBAR and form 8938.
Yes, it looks like there are penalties for failing to report foreign bank accounts even if the violation was not willful. I don't think this is something that applies to very many small business owners but I concede that you have provided an example.
They don't just demand you report foreign bank accounts you own, you also need to report foreign bank accounts that you have signing authority on - a tactic that puts many non-small business owners at risk of the penalties just because they happen to work in accounting for a company with international assets.
I must have missed the left wing strategy meeting where they were urging people to get a job at the IRS so they could use it to push critical race theory. Beurocrats are just people working their jobs, and in places like the state department and the FBI they tend to be more right-of-center. If you believe (with no evidence) that the left has somehow taken over the beurocracy then go become a beurocrat and take it back.
Very much this. If the analogy is going to be to the police, shouldn't the IRS be subject to the same restrictions we impose on ordinary law enforcement? The whole premise of why they are not subject to those strictures is the notion that they are an administrative agency, not law enforcement, that compliance is mostly voluntary, etc. Thank you for capturing what is wrong with the "tax police" spin.
Yeah, I kind of hate to say it, but these arguments are correct. The regular police need probable cause to investigate you. They need a magistrate to sign off before they can force you to turn stuff over to them. An audit is different because there is a certain level of randomness to it, and the IRS doesn't need permission for anyone else to open an audit. Now as I understand it, audits aren't entirely or even mostly random - the IRS uses certain criteria for detecting who's more likely to be a tax cheat and who isn't. But most people don't know this and don't trust that there are safeguards.
I support increased IRS funding, and the Republicans are in fact trying to exploit people's fears in bad-faith ways, but those fears are real. It's not just tax cheats who don't want to get caught.
It is akin to the NYC "stop-and-frisk" policy, which I can understand why people would oppose being applied equally to all strata of society.
However, I supported that policy -- I thought its benefits outweighed its costs. I also support more tax audits for the same reason. I just hope the auditors go after lots of areas of cheating -- conservation easements, bogus non-profits, inappropriate deductions, EITC cheating and all the rest.
I think they do investigate a lot of suspected EITC fraud, though. Apart from any question of fairness, auditing lots of poor people seems like an inefficient use of resources.
Maybe. The thing about EITC fraud is that it's also easy to check and doesn't require a ton of resources. The computer can do most of the work for you. You don't need an agent combing through receipts etc.
This was a contributing factor to why I didn't bother trying to get the EITC when I technically qualified for it while in law school -- at least in the early 2000s, EITC recipients were being audited at a dramatically higher rate, so I figured it was worth forgoing the money to minimize my risk of an audit.
Bull. Cops don't need probable cause to investigate anyone. They need PC to arrest you. They need PC for a warrant, although there are many, many situations where they can search a person or their property without PC. But if they want to investigate, they just do. They can follow you all day long, talk to everyone you talk to, surveil your house, run a background check, search or seize any property you abandon, etc. The IRS aren't as a matter of course, doing anything violative of the Fourth Amendment. And the consequences of getting caught are only criminal for those who had intent.
That's a fair nuance, I was a little too breezy there. But an audit is more invasive than any of those things you mentioned, which are just going around gathering publicly available information. That is why, absent actual police misconduct (which of course does occur - racial discrimination or what not - but represent abuses of power, not the system running as designed on paper), regular people fear the IRS more than they fear the police.
I disagree that an IRS audit is more invasive than “follow you all day long, talk to everyone you talk to, surveil your house, run a background check, search or seize any property you abandon, etc.”
My spouse’s small business was audited a few years ago. The accountant handled most of it, there was a several hours-long interview with the agent at an appointed time, and then about a month later the agent called to say the IRS owed THEM about $800 they’d overpaid. I think it only escalated into something truly nightmarish if the agents discover after a cursory investigation that you’re actually doing bad things with your books. In which case, I don’t feel that bad for you.
I don't fear the police much but I fear the IRS much less. Maybe it's just that I've never been audited, I don't know anyone who has, and I don't feel I've done anything wrong or shady on my taxes. I've also never even heard an IRS "horror story" 3rd hand. An audit sounds like a pain in the ass but so does jury duty and so does being questioned for randomly matching the description of a wanted criminal.
Do normal people really fear the IRS? Am I an outlier?
I mean, they haven't actually audited hardly anyone for many years now, so that may have something to do with it. In past decades it was more of a cultural trope.
This is equivocating quite a bit of what "profiling" means. We rightly frown upon racial profiling but if the police decide to focus an investigation into a bank robbery on people in the area who have robbery convictions then we don't, nor should we, frown on that even though it is "profiling" by your definition.
I would counter that focusing on people in an area with robbery convictions is going to end up being little better than racial profiling by a different name in a lot of places.
Even if we granted that it's okay to profile based on past criminal convictions, most of the IRS audit criteria is going to be focused on perfectly legitimate characteristics that they unilaterally and secretly deem shady. I will continue to frown at that as illegitimate profiling.
The idea that I should have to file a form every time I pay a vendor $600 is simply absurd. If I ever get dinged for not doing that, I might become pretty Republican pretty fast
If you're doing it all the time it's going to be a significant amount of money. And you should also develop a very efficient process for filling out the form so that it becomes easy. And the 600 is a minimum, so this is going to apply to payments of 6,000 or 60,000, too.
If you're paying just over $600 just a couple times a year I'm a bit more sympathetic but it's also not a huge burden. Maybe the 600 amount should be raised or it should be somewhat simplified, but I'm not about to "become a Republican" because the process of paying taxes has a single inefficiency I don't like.
Apparently that $600 cutoff dates all the way back to the very first statute creating the 1099 requirement in 1954. In 2022 dollars that would be around $6000. I'd be OK with raising that cutoff to account for inflation.
The US tax code is shot through with inefficiencies. Estimates of the total tax compliance cost for the US economy vary quite a lot, but the GAO allows that 1% of GDP is probably the lower bound:
I know a guy who went from having a full ride college scholarship to being homeless because he got in a fight (he was trying to protect a friend, didn't initiate the fight). No consequence will ever be that extreme for someone who cheats on their taxes. Do some professionals have to pay a fine? Poor babies!
This is an important difference. And the other important difference is that taxation has a much bigger gray area. It’s pretty much black and white to determine if I’m speeding in my car or robbed a store at gunpoint. By contrast, whether an income reducing deduction is legitimate or not can actually be complicated. And the IRS often does not tell you what is or isn’t legitimate.
So while I’m in general agreement that funding the IRS fully to make it a function well, the best way to do things is to make tax compliance simple and black and white. Then you don’t need as much enforcement and there are fewer creative ways to “cheat.”
I am a CPA specializing in partnership taxation, and the idea that the IRS is this draconian police force that kicks down people's doors to drag them off in cuffs when they make a mistake or miss a payment is simply ridiculous. The IRS gives people tons of due process and people who go to jail are usually those who persist in tax cheating for years after being given many chances to do the right thing. For most people the IRS aduit rate is so low that they have very little chance of ever actually meeting an IRS agent in their entire life.
What noticed about the people who get into legal trouble with the IRS is that they are small business owners who will use payroll or sales tax funds due to pay bills when they are having a bad month. Then they don't really ever catch up and it becomes this snowball effect of underpaying taxes and cooking books to cover it up. They eventually get caught and then pull out the waterworks about how the government is trying to ruin them.
> So you can be as cynical about the IRS and its agents’ motives as you like, but unless they are being specifically pressured by congressional Republicans to focus their audits on the poor (which they do tend to do)
I’d like to contest the point that the poor are being disproportionately audited out of spite as reported in that WP piece. [1] From that article
> That is partly because the lowest-income filers are the ones getting the most enforcement: Households poor enough to receive the earned-income tax credit are five times more likely to be audited than higher-earning filers, according to research released by Syracuse University’s Transactional Records Access Clearinghouse.
From what I’ve read, EITC audits are pretty simple and result from automatically detectable errors. A common example is two tax filers both claiming the same dependent child. This is trivially easy for the IRS to detect since you have to list the SSN of claimed dependents. And the IRS has found that EITC errors are quite common. [2]
> Over 26 million taxpayers receive over $64 billion in EITC benefits. The National Research Program (NRP) estimates that approximately 50% of EITC claims have errors and the $18.1 billion improper payments account for almost half of the $40 billion portion of the tax gap attributable to credits.
> In FY 2017, risk-based scoring identified about 6.4 million returns as claiming a potentially erroneous EITC due to a qualifying child issue or misreported income.
> The IRS planned to audit approximately 300,000 EITC returns for over the past 5 years and plans to continue to audit about 300,000 returns each year in the future. EITC correspondence audits are the most efficient use of available IRS examination resources with the average time to complete the audit of 5 hours per return.
Further, almost all EITC audits are correspondence audits; a small-scale audit where the IRS mails a form explaining the issue and asks the filer to either provide some proof or pay the difference of a revised tax filing. [3] These don’t take a lot of time and further provide the necessary clarification to prevent the same mistake in the future.
There is still a lot that could be done in terms of tax filer education, or even better an IRS-funded tax filing website. Similarly, with more funding for customer support the IRS will be able to provide more time in answering questions and helping people file the correct taxes initially. Here’s a good critical review of EITC audits and proposals for improvements, The Long Read: Auditing earned income, https://tax.thomsonreuters.com/news/the-long-read-auditing-earned-income/
Huh, I've gotten a letter from the IRS saying "we think you bonked this line wrong, and you owe Uncle Sam such-and-such". And I cut 'em a check, because I trust their paperwork more than my own.
It didn't even cross my simpleton mind to refer to this as an "audit", but I guess it must have been.
I had the same experience. I goosed up the child tax credit because I missed some of the prepayments they did, so I claimed the wrong amount. The IRS sent me a letter saying that I goosed up and that I should pay for the part of the credit I wrongly claimed plus a paltry amount of interest. I checked their math, cut a check, and problem solved.
That said, getting a letter like that initially scared me because the prospect of a real audit sounds unpleasant.
Audits were a television trope of the '80s and I think that colored how I thought about audits. Now I realize that the IRS doesn't want to waste their resources so of course "hey, your math is wrong. Just pay this," would be the optimal way to solve the issue under the current suboptimal system.
I do get that nervous twinge when I receive an IRS letter but it's contained either a check or something neutral/expected every time I can think of.
The “just pay this” approach has its downsides. I’ve got two of them from states in the past few years — both of which I think were bogus (for different reasons). However, neither was for enough money to be worth my time to contest, so I just got annoyed and payed up to make the problem go away. There was no human contact first, so there was no way to sort it out without my filing a bunch of paperwork after they sent the bill.
Definitely a downside for some and I would not be shocked if states are worse than the feds here. I personally value my time above almost anything else (and avoid dealing with people over the phone) so having an option to just make annoyances go away with small amounts of money and no human interaction is a plus to me, especially if I might be in the wrong. But that's obviously my own bias.
Of course, it also shouldn't be an invitation for petty extortion, lazy or shoddy work, or using bureaucratic paperwork as a cudgel to prevent an appropriate outcome. Lord knows there's enough of that happening whether the government is involved or not.
I had a fun one once where I accidentally filed a previous year's schedule A (itemized deductions) with a current year's 1040 (I had them open side-by-side to compare). They caught the error and sent me a letter saying I screwed up on my 1040 and owed some small amount. I called them and after waiting for about an hour on hold (the worst part of the process), I spoke to a delightful woman in Kansas who, after some painstaking checking line-by-line, figured it out. We both had a good laugh about it. It definitely left me with a generally good impression about them.
The EITC is very easy to fuck up and is way too complicated and the GOP is absolutely culpible for that. They have long opposed simplifying it and having the IRS just do people's taxes and send them a letter telling them what their rebate is.
Democrats have had control of both houses of congress and the Presidency during Obama's term, and currently. If the Democrats wanted to change the EITC, there is nothing Republicans could do to stop them. It fits perfectly into any reconciliation bill as the IRA was.
You can't use reconciliation to make the IRS do people's taxes. Reconciliation is for changing the *amount* of taxes and spending, whereas that would be a new *program* that you'd need to pass a regular bill to create.
I actually think you could. So long as you could provide a reasonable basis for it increasing or decreasing revenue to the government.
It makes as much sense as the US government being able to cap drug costs, or create a program to provide subsidies for clean energy using reconciliation.
The main opposition to this comes from Republicans, but yeah Democrats should have fixed this during the Obama years and should repeal the filibuster and fix it now. Part of the difficulty is that it would cost money which means raising taxes on some people.
I also do appreciate when ProPublica goes hard on TurboTax (maybe not the specific rent-seeking accountants you had in mind). As easy as it was to mock Paul Ryan's tax postcard, it should be achievable for most people, just not how he intended it.
We accidentally claimed full dependent's expenses after ALSO receiving an advance child credit from the IRS, and got a quick letter from the IRS complaining about this. I looked through my records, agreed with their assessment and sent them a check. I don't think they assigned a fine - just the money I owed.
Does this get counted under the "audit" statistics?
1. I don't deny people should pay their taxes, and small business people who overclaim expenses should face audits. So I don't even really think I oppose the bill.
2. Stop with the "tax police". That's just juvenile spin. If saying "the IRS", a totally value-neutral term, reduces the popularity of what you are arguing, that should be a meaningful data point for a writer who cares about popularism.
3. Matt goes on and on about Italy, but his own data shows that even with the tax avoidance we have, we are not Italy. Indeed, despite the fact that Republicans have supposedly defunded the IRS for 30 years, we still... collect most of our taxes compared to other countries. Where's the crisis?
4. My real problem with all of this is that it is being sold as some attack on super-rich people who have complex tax shelters and such. But the problem is, the Democrats want to use this to raise revenue so they don't have to pass an open tax increase. And to do that, they have to go after small businesses, because that's where the money is. Which is... fine, I guess. But it makes the spin very dishonest.
The Republicans offered an amendment that would have limited the new enforcement to taxpayers making over $400,000. The Democrats voted it down. That was telling. They need to be able to go after upper-middle class small businesspeople, or this won't raise any money, because when you take on the very rich, the enforcement costs are huge- they hire good lawyers and fight.
So in the end, this is basically just an attempt to collect more taxes from small business. Which is fine- they owe them. But it isn't this great righteous crusade against tax evasion by the very rich. Such a crusade will cost real money, and the Democrats want this to count as a stealth tax increase and won't do that.
Part of my point is that all of the people won't be subject to that, because if the mandate is deficit reduction, the focus is going to be on the small business people who the wonks say offer a good return on the IRS' enforcement investment. If they spend this money going after the super-rich, they won't recover enough to meet the revenue targets.
Again, I am not saying small businesspeople shouldn't be forced to pay their taxes, but this should be seen for what it is (a way for the Democrats to get some revenue in the CBO scoring) rather than a grand statement of the government's intention to enforce tax compliance across the board.
> If they spend this money going after the super-rich, they won't recover enough to meet the revenue targets.
Is there any evidence that a substantial number of rich people are cheating on their taxes? While there are certainly some individuals engaging in criminal tax evasion—possibly in context of other financial crimes like embezzlement and money laundering since they want to hide the proceeds of their crimes—I doubt this accounts for a significant amount of missing tax revenue.
Most rich people have highly-tractable income and have their finances managed by highly-informed accountants and lawyers. While the rich engage in substantial amounts of legal tax avoidance, I doubt few of their hired financial professionals are willing to help them engage in criminal tax evasion.
There's certainly a lot of evidence that rich people engage in all sorts of dodgy tax shelters, misclassification of income, and other schemes to evade taxes. Those accountants and lawyers often push the limits.
And you WANT an IRS who is willing to take them on, litigate, sometimes win and sometimes lose, and create some deterrence. If you know that if you push the limits, you are going to have a dogged IRS fighting you every step of the way, and labeling you a tax cheat in public, that could very much help with the norms Matt is talking about.
But doing THAT won't get you a CBO score, and since this bill is supposed to help the Dems avoid passing something labeled a tax increase, we can't do it that way.
While I agree that illegal tax evasion occurs and further agree that it should be investigated and prosecuted, I don’t believe this occurs at any significant rate. Most rich people just don’t have the opportunity to hide their income since they’re moving massive sums of money through major financial institutions that properly report all of these financial transactions.
E.g., when Bezos sells $1B of AMZN he doesn’t get the proceeds in duffle bags of cash. Instead the transaction occurs electronically through brokers and banks that are reporting everything to the SEC and the IRS. Similarly, almost all transactions that rich people engage in occur through similar systems with electronic paper trails and automatic reporting to the government.
You mention “dodgy tax shelters”, but there are legal tax shelters and they require a substantial amount of registration and reporting. E.g., a trust is a legal entity that must conform to various federal and state law, including tax law. The structure, beneficiaries and contributors are all registered with the government and all financial transactions are subject to reporting. There just isn’t any shadowy area to hide anything.
I have come across letters from tax lawyers to rich people in my law practice. LOTS of tax shelters aren't nearly as "legal" as you are saying; it's more that the IRS exercises enforcement discretion and doesn't pick fights with powerful people.
At any rate, it's much better to fight like heck against the super-rich and lose sometimes than not to fight at all.
I took one tax law class and the professor was a former IRS lawyer. My biggest takeaway was that, at the level of larger businesses and wealthy individuals, tax practice becomes much more of a negotiation instead of law enforcement. The accounting and tax structuring get very complex and there's a lot of back-and-forth between the IRS and the accountants and lawyers in the private sector about which structures will be allowed and how aggressive they can be in minimizing taxes.
My understanding is that the IRS side of that negotiation has suffered greatly in recent years with budget cuts, retirements, and loss of expertise. They're now intellectually and legally "outgunned" by high-dollar private sector tax pros and are getting run over in negotiations.
So the way to think of additional IRS enforcement funding in regards to the wealthy and larger businesses is less that it will help catch criminal behavior and more that it will buy better legal representation for the government's side of the negotiation. But that can and should still result in higher tax collection from those taxpayers.
It may, but it looks like what the Democratic wonks are looking for is to go after small business (with a certain return) rather than to put more money into IRS negotiations/prosecutions of very rich people (with a more speculative return). Because they want this to score well with the CBO so they can avoid having to pass a tax increase.
This encouraged me to go read the CBO score link in the article. I read it as CBO anticipating that IRS will spend the additional enforcement money in line with it's current enforcement priorities. They then adjust for an assumption that IRS is already prioritizing the highest-ROI enforcement, so further funding will have a lower marginal ROI.
So I don't think this is scored in a detailed line-by-line analysis. Rather, current priorities plus an arbitrary (though reasonable) adjustment.
Meanwhile, IRS discusses it's enforcement priorities here, which includes the line "The IRS is increasing focus on non-compliant, high-income and high-wealth taxpayers, business partnerships and large corporations that make up a disproportionate share of unpaid taxes."
And it looks like they've added some performance indicators about doing more exams of such taxpayers, on p49 here. And yeah, performance has been bad and getting worse recently.
I am calling bullshit on the argument that we should just raise taxes instead. The tax code is complex mostly because we make political decisions to favor certain types of income and taxpayers, be it capital over labor, homeowners, farmers, ranchers, real estate investors, state tax payers, etc. Lowering enforcement and raising income tax on everyone is literally favoring dishonest people over honest people. There would be costs in getting tax compliance to 100 percent that are obviously not worth it (you probably need a totalitarian state), but improving enforcement on the margins saves the average taxpayer money at the expense of tax cheats.
Absolutely, raising rates and allowing enforcement to weaken is equivalent to the "low risk of arrest, extreme sentences when caught" strategy in criminal justice, bad idea.
Hi Dilan, just wanted to give you a welcome here, and say that I've long enjoyed your comments dating back to when you posted at LGM, as well as your tweets that I've increasingly read as you interact with Megan McArdle over there. I don't always agree with what you say but you regularly give a thorough challenge to people's arguments, and that's something that should be appreciated more.
I'm not familiar with Dilan anywhere else, but I second your comment. He's bringing a nuanced view to this discussion which, though I don't agree with him, I do appreciate.
One other thing I'll note (and I say this as a full compliment to Dilan) is that, being a good lawyer, he's very argumentative. Discussions with him will tend to be very thorough, as I'm already seeing in some of today's subthreads.
>>Indeed, despite the fact that Republicans have supposedly defunded the IRS for 30 years, we still... collect most of our taxes compared to other countries. Where's the crisis?<<
I agree there's no "crisis" as such. But A) we need money to fund decarbonization efforts; and, B) given inflationary pressures, clearly we can't put it on the national credit card at this time; and, C) a broad-based carbon tax is a nonstarter.
So getting rich people to actually pay what they owe seems reasonable under the circumstances. And when they don't pay what they owe, by definition that makes the tax code more regressive, which hardly seems like a good state of affairs given the country's serious economic inequality issue.
PS–Per Arnold & Porter: "The IRA notes that none of the IRS appropriated funds may be used by the IRS to increase taxes on taxpayers with income below $400,000. The Congressional Budget Office estimates that such measures allow the IRS to raise $124 billion in revenue."
So, I'm not really sure about the GOP amendment you mention.
We could just raise taxes you know. Ordinary, everyday income taxes. That's how you are supposed to raise revenue.
If you are going to do tax enforcement, your goal should NOT be to raise revenue. It should be to punish the worst tax cheats.
Since we are analogizing to the police, do you know what happens when you give police revenue targets? A lot of policing of traffic offenses that bring in revenue, and not enough resources devoted to stopping serious crimes. That's at the center of the problem here- the Democrats are politically afraid to just go out and raise taxes on rich people to pay to fight global warming, so they need this to be a stealth tax increase, and to do that, they can't go after the super-rich and their tax shelters. It has to focus on small businesses instead.
If you are going to do any form of law enforcement, should your goal to be to raise as much money as possible, or to prosecute the most egregious cases of wrongdoing even if it costs you money?
Again, there's a conflict between the "tax police"/law enforcement/going after wrongdoers spin and pursuing revenue goals. Good law enforcement does not pursue revenue goals- it goes after the most important crimes and spends money to do it.
With traffic enforcement, compliance is revenue too! So is asset forfeiture and a whole bunch of other abusive law enforcement practices.
As for your distinction about future conduct, (1) nobody knows what the future will bring (as Matt Yglesias concedes in the OP) and (2) it seems to me that going after brazen super-rich people would carry massive deterrence benefits too. There's no reason to think that targeting small business expense deductions will get you the best future deterrence bang for your buck.
The point is, the things that bring in law enforcement the most money are not always the best law enforcement. If you actually care about enforcing the law, you spend money, pick the most egregious targets, and don't worry if you get your money back or not. But you can't get a CBO score that way, and you might have to ask the voters for an overt tax increase.
This isn't an exact match since money is owed no matter what, but this goes back to what I was saying last week about being bearish about Pigouvian taxes due to being inherently conflicted between revenue generation and stopping the consumption of a good or service.
Sorry, your thinking is that the purpose of law enforcement is to arrest the worst criminals? You don't think it should be about reducing the number of occurrences of theft, murder, rape.....
In theory* we could raise taxes more, but, if we're leaving money on the table because of lack of compliance, rectifying that situation seems reasonable. Also, the IRS really is in a horrendous state from everything I've read and (occasionally) personally experienced. This WaPo piece highlights some of their woes:
*The IRA does raise taxes—on corporations. I suppose if Democrats could find the votes they could raise taxes even higher, but again, what's wrong with stiffening enforcement?
We aren't leaving money on the table, or at least not as much as the wonks say we are, unless you believe that the super-rich should be above the law. It's like saying we are leaving money on the table by not reassigning all of our homicide detectives to do traffic enforcement!
I'm not familiar with that amendment. I do think it would be politically wise for the Biden Administration to unilaterally put in some regulations or policies to handcuff themselves from going after people who aren't super-rich. But it would have to be done in a thoughtful way. One problem with simply having a flat income minimum for an audit is that the minimum would need to be based on reported income, and the whole point of doing a tax audit is to detect those people who are underreporting their income! So that could end up just serving as an invitation for fraudsters.
"U.S. Treasury Secretary Janet Yellen told the Internal Revenue Service on Wednesday that if the Inflation Reduction Act became law additional IRS resources should not be used to increase audit rates on taxpayers making under $400,000 a year"
They've already done what you're saying they should do!
See my comment above. The Yellin statement looks like political spin, after they killed the statutory language that would have actually been enforceable.
Wouldn’t that statutory language have killed the bill, because any amendment of that sort would break the reconciliation process? That is my understanding of what happens when an amendment is brought up during vote-a-rama.
It wouldn't have killed it necessarily, but the Dems would have had to ensure everyone in their caucus would vote for it. In other words, the amendment's failure indicates the Democratic caucus decided it couldn't pass a bill that limited enforcement in this way, probably because it would result in a lower CBO revenue score.
As I said in my very first comment, I am not even sure I oppose the bill. I have no sympathy for small business people who cheat on expense deductions. But I don't think it's this great blow for tax fairness- I think it's basically an attempt by the Democrats to raise some quick revenues while taking the political heat for passing a tax increase. I'd like to see a bill that spends money and targets the super-rich and their tax shelters and avoidance schemes.
> But the problem is, the Democrats want to use this to raise revenue so they don't have to pass an open tax increase
I think part of the issue is that if you can't effectively enforce existing taxes on small businesses then you end putting a more and more disproportionate share of the tax burden on wage earners . I've seen this a lot with colleagues who work in the EU. They are relatively highly paid software engineers who almost always work as contractors for tax reasons. But most people aren't in professions where that is possible so they end up bearing the brunt of the tax burden for the entire country.
"U.S. Treasury Secretary Janet Yellen told the Internal Revenue Service on Wednesday that if the Inflation Reduction Act became law additional IRS resources should not be used to increase audit rates on taxpayers making under $400,000 a year"
Her statement is part of the reason I distrust the government.
We just passed a law through the Congress. And then an unelected executive branch official says "we aren't going to follow the law and will only enforce it on politically unpopular people". Like when Obama implemented DACA or other prosecutorial discretion implemented for political purposes, when I don't trust enforcement will be fair, I lose faith in the government overall.
So... I agree with you in principle, but I'm not sure it applies here.
If there's _one_ thing that I think the IRS can prioritize on when deciding where to go look for revenue, it's the amount of revenue we're talking about.
If cops decided to only chase speeders who were exceeding 5 MPH over the limit, you might agree/disagree, but it wouldn't strike me as using prosecutorial discretion to go after politically disfavored people - it's tied exactly to the enforcement goal.
I feel like on some level you ought to understand that the executive has to be in the business of prioritizing and exercising discretion. Do you think that plea deals/bargains are similarly evil and that we should prosecute every single misdemeanor to the fullest sense of the law, no matter the details/resource and time constraints?
Imagine that a Republican administration suspends enforcement of federal gun laws in the Southwest because "citizens don't need to worry about the government getting on their backs when criminal illegals are running by their homes in the night" or something. Just prosecutorial discretion, I guess!
It's the difference between good faith discretion -- "We have limited resources and will focus them on the most important issues" and bad faith discretion -- "We will focus our resources on a disfavored group of people".
The Democrats voted to keep that language out of the statute. Doing it through Yellin means (1) it will be hard to sue the IRS if the agency violates it and (2) Yellin or her successor can always reverse it and start going after middle class or even working class taxpayers.
That looks to me like an act of political spin. They could have agreed to an actual statutory restriction, but they didn't want one because it would lower the CBO score.
To point 3, I believe the current underfunding of the IRS is not widely known. Also people who give tax advice to businesses (CPAs and tax lawyers) are technically bound not to advise people to cheat, but without some likelihood of audits the ethical ones will lose out more and more to those who advise cheating.
Finally, the current status where we have a lot of well functioning/fast growing/large companies means most companies are currently employing mostly above-board accounting practices, but will that be true for the next wave of businesses? Institutional deterioration could take time... though like you say it could also not happen I suppose.
Another provision of the IRA: America may soon join other high income countries in providing a free, "pre-populated," e-forms filing service. This link suggests about half the country would benefit (a feasibility report must be provided to Congress within nine months):
It's not clear to me whether the IRS can proceed do this after the report is filed or not. I'm assuming it'll take further congressional authorization. Intuit, by the way, are some of the most brazen rent-seekers on the planet.
Those Alaskan natives aren't subjected to lots of laws around hunting and fishing, so I assumed Jasper was really upset about their unlimited harvesting of silver salmon.
That's interesting. It might indicate that far-right politics doesn't just attract dishonest people in general. It might disproportionately attract people who are dishonest and got caught.
Maybe that experience gives you a specific type of grievance against society, and not the type that makes you vote for Bernie Sanders. At least that was my reaction when I saw this:
Trump is very much the king of shysters so it's no surprise that his success would attract fellow travelers. And I've certainly known "libertarians" who have been a bit too proud about evading taxes and painting it patriotically. It's an identity I do not understand at all.
My stepfather has a small logging and transport company, and he really struggles to determine his tax payments each year.
He just isn't organized and educated and tech-savvy enough to do it. And he's the type that doesn't want to deal with the hassle of trying to cheat on his taxes.
He does a blue collar job and employees a small number of other blue collar people, and he just can't handle the paperwork.
Anyways, if I think of a county of folks like him (rural TN) and his workers, I can see how that industry would come into prominence.
Those were services to negotiate with the IRS about how much of your back taxes you will pay and when. Which is totally something you could (and still can) do, e.g.:
I'm not at all sure that hiring Bob as an agent to negotiate would get a better result than trying to negotiate yourself, and especially not better-enough to justify Bob's fee. But I guess it might? And the business model is taking advantage of the fact that people are afraid of the IRS and don't know negotiation is an option.
The real tax dodging happens on the front end, before you get the bill in the first place!
Good lord, I just want better customer service. I run a business and have a couple over the years. I’ve been audited several times and the money I’ve spent on financial and legal advice is painful. So much time just waiting on responses to questions and letters. Going through an IRS audit feels like traveling back to before email or phones were invented.
I have two brothers in law that run successful businesses. One runs restaurants, and one as a contractor business. I also know a whole bunch of other small business owners. Let’s just say that shenanigans are fairly common. Legal and illegal.
The contractor brother-in-law is so successful he is having issues spending enough money. He’s in a race before December to put up a new steel building. By a backhoe. And a dump truck.
There is still people working in the restaurant industry they get paid under the table, though this is actually way less common now. Credit cards have made things like this harder. There is just less cash to have a free hand with. Also there are a lot less purely illegal immigrants than there have been in the past. This partly contributes to the labor shortage.
My wife actually used to own a restaurant and run it. She had a big run-in with the IRS which in part prompted her to sell the business because she didn’t like the stress.
One of the biggest problems is that our tax code is so complicated. Every complication is an opportunity to look for loopholes or shenanigans. I agree that we should fund the tax police, but we should also consider simplifying our tax laws.
On another note, I have a cabin up in the mountains of Eastern Oregon. Maybe I should start a farm.
The problem with that is that there are two reasons why tax laws are complicated: (1) to close loopholes, (2) to give people tax benefits for doing stuff we want to encourage. Regarding (1), business activity is complicated. If you apply simple laws to complex business activity, you're going to get metric tons of tax avoidance (as opposed to tax evasion), way more than we have today. Regarding (2), in many cases I'd favor getting rid of these special benefits, but it wouldn't be doing individual taxpayers any favors, it would do the opposite.
Those efforts are what I'm referring to as (2) and to the extent they create complexity, it's the complexity involved in making sure you get every deduction available to you and don't leave any on the table, i.e. to avoid *overstating* income. While that's a form of complexity, it's different from (1), where you have to follow complex rules to avoid *understating* income, which would be illegal.
You are exactly right. It’s good to encourage people to buy backhoes. It creates jobs. But then someone figured out that you can buy a backhoe and save on taxes because of depreciation (I honestly don’t understand it) without ever using it. Loophole. To be closed and replaced by some other one eventually.
The column could just as well be subtitled, 'the rule of law for thee but not for me.' For the overwhelming number of Americans increased enforcement of tax laws will have no effect. The Government already knows what your income is and in some cases also major deductions (SALT and mortgage interest). Payroll income already includes tax withholding and most investment income such as stock dividends and capital gains from sales are reported to the Government. Even most private equity and hedge fund manager income is known.
Those objecting to increased IRS monitoring are likely to be the ones who have been skirting tax laws and reporting requirements. They should be made to pay their share of taxes just as those of us whose income is fully reported to the Government.
It seems like even the IRA is not spending enough on tax enforcement. We should be on the other side of the enforcement curve where increasing IRS funding doesn't increase revenue enough to pay for itself. Having a society where people follow tax laws is worth paying for.
TBH, I am disappointed they are going out of their way to *not* audit the 100K-400K small business owner class, many of whom openly brag, like Trump does, that taxes are for suckers.
Besides, it's not hard to find the tax cheats. Audit any company that won't process credit cards, and open a reporting line giving amnesty for "paid in cash" employees in return for ratting out their tax skirting employer.
As a fastidious taxpayer, I agree with the gist of this article. But Matt isn't sufficiently addressing the reason the bill has been criticized: our tax code allows the wealthy and well-counseled to evade taxes above board, while confusing the hell out of average citizens.
My wife is a freelancer. Many in her position cheat, but it's onerous to get it right even if you want to. We spent hours trying to figure out whether we could claim the corner of our bedroom dedicated to her desk as a home office space (the answer: maybe).
Of course if we could afford a place with a separate home office for her, we could clearly claim that. There are tax advantaged corporate structures that wouldn't be worth taking advantage of at her income level. And Congress can provide IRS enforcement funding but can't pass carried interest tax reform.
I want people to pay what they owe in taxes. But I can see why it feels like a slap in the face to juice enforcement without implementing tax reform, and I certainly worry this will hit middle class freelancers and small business owners hardest.
I'm also a freelancer (formerly full-time) and could not agree more. It's so frustrating, I never even try to claim anything that's remotely questionable.
I also used to work for a foreign government in DC. Everyone in these positions ("locally engaged") knows what the deal is, including that you have to pay the employer's share of FICA taxes (at least back in the day, salaries were structured to reflect this). But when Tim Geithner was appointed as Obama's Treasury Secretary, it came out during the hearings that, when he was at the World Bank (or one of the other IFIs, can't exactly recall) he didn't pay that portion, and had to go back and finally do so. He claimed ignorance.
This absolutely enraged me. l was a policy peon, and he was the freaking incoming Treasury Secretary. It was not plausible to me that he didn't know this, and even assuming he had an accountant, presumably he reviewed the forms before signing them. I've disliked him ever since.
This is my favorite kind of Matt post, something that I hadn't thought through, but when you think about it is clearly correct, but I wouldn't have been able to articulate so clearly on my own.
That said, I think you have to be careful with tax enforcement. I own a small business. It used to be located in Washington State. Instead of an income tax, Washington State has a "Business and occupation" tax, which taxes top-line business revenues at 3 different rates. My accountant had advised me that my business was retailing, and as a result I owned very few taxes (because I could deduct out of state sales). Several years in, a state collector called, yelled at me, and told I owed a large amount of taxes because it wasn't retailing. My accountant was of no help. I owed a lot, but not enough to talk to interest a tax lawyer in talking to me.
I paid the taxes. Then entirely on my own discovered that there is an obscure board in Washington that will issue written opinions on your tax category. I wrote them a long letter describing how our business worked (it wasn't unique or obscure). Many months later, it came back all "retailing". After many more months, I got all my money back. I also left washington state.
There are two things about this that matter. (1) The person who called me on the phone was clearly operating on some kind of quota scheme, and was clearly trying to meet her quota. She wasn't trying to get at the truth, she was trying to find a business which would not have enough resources to figure out it had been ripped off, and (2) During the course of many phone calls, she said to me "Well, see, what you did is innovation. In Washington, innovation costs extra." Those were her exact words. I remember them 20 years later. She was talking about _my_ innovation. She was right, I had innovated, but those words definitely left a bad taste in my mouth.
So, as clean as Matt's argument is, you have to be careful about how you motivate enforcers. You can end up alienating people who are 100% law abiding.
Second, the lawyer with the cattle was most likely getting his ag property tax exemption - there's a formula in each county for how many of any particular type of animal (or insect, bees can count) you need to pay the far lower agricultural property tax rate rather than the residential or commercial one. Back in the 1980s, EDS' HQ on the (then) outskirts of Dallas had cows on it for just that reason, according to a friend who worked there. Counting animals is an easy, objective test - makes tax enforcement easy. But it is also easy to "game". On the other hand, your lawyer acquaintance was adding to the beef supply. Tax avoidance or reasonable response to incentives?
Finally, tax compliance would go way up if the tax code were simplified. There's enormous play in many of the regulations and what is and isn't legal is often unclear (making lawyers and accountants lots of money). Then there are all the "special" bits of the code - the lengthy memoir "A Lawyer's Life: Deep in the Heart of Taxes" by Edwin S. Cohen, a very successful tax lawyer who worked for Treasury, etc. as well as in private practice, is a great source. One of his stories - recounted with pride - is how he got a special tax break for the University of Virginia (he was an alumnus) to fund renovations of frat houses by using his UVA connections on the Hill. With a tax code filled with such stuff, it is no surprise that many people think the game is rigged. It is rigged!
Finally, enforcement is an issue. We should enforce laws or repeal them. But the IRS has been used as a weapon at times and the IRS has shown remarkable incompetence at others. There is a case for some serious reform. Things may not be as bad as Republican talking points suggest, but they aren't rosy either. Good governance is really hard - as the late economist Rick Stroup said, it is the ultimate public good. Having a really complicated tax code stuffed with special interest provisions makes it harder.
One could argue the "cattleman" is a drag on the economy, using grazing land as a vacation home while hosting a nominal number of cows rather than that land being used more efficiently for cattle ranching by a large committed ranching operation. It's probably a net loss for the beef supply.
Well, you could. But then we'd have to get in to whether cattle are a good thing or not (the Dutch are in an uproar over proposed payments to slaughter cattle to lower methane emissions), etc. And, as someone with a ranch in the family, a "large committed ranching operation" isn't that different from people who lease their property to those operations to run cattle. The required density of cattle (or bees or sheep or whatever) to get the lower rate is set by the property tax authorities who usually understand the carrying capacity of the land around them and, in part, the lower rate reflects the lower level of services demanded by a largely rural property with cows on it compared to a bunch of ranchettes with transplanted urbanites who want the sheriff to come out more, use the schools, roads, etc.
I am not so sure it is a loss for beef supply, that a loss in beef supply would be evaluated as a good or bad thing by an omniscient social planner of the kind who lives in Econ 101 textbooks, or that adjusting property tax rates by a simple to implement and enforce rule of requiring X cattle per acre to get the lower rate isn't a good thing. In general, legislative bodies and academics (me!) put too much faith in the ability of the tax system to do really complicated things, are surprised when the smart lawyers and accountants find clever ways to use the complicated rules to save money, and discount too much the potential for outright rent seeking. Independent of the need (or lack of need) for more IRS agents, we need massive simplification of the tax code -- that would push many of those smart lawyers, lobbyists, etc. into productive activities too.
Isn’t he working in the United States while physically located in Italy? I don’t believe you are required to stop working while on a country in tourism - you just aren’t allowed to take a job *there*.
Your understanding is incorrect. Google the many digital nomad discussions on it. You cannot engage in paid work in a country without a work permit. Doesn't matter where you are getting paid from.
I live in a Southeast Asian country with a lot of digital nomads and English teachers working illegally on tourist visas (they live here but teach online for kids in China because that pays more than local schools). It is fairly common to hear stories of one being caught, kicked out of the country, and blacklisted for visa violations.
China and Vietnam have significantly more restrictive visa classifications than the developed world, and even there China would never contemplate expelling someone because they spent a few hours a day catching up on work from their job in their home country while visiting China to see family or travel.
The US and (I believe) entire EU have a visa with a dual classification for business/pleasure that allows you to do basically whatever you want except take a paying job or run a business domiciled in the country you're visiting.
"As more and more people use the internet to work, we have noticed people inquiring as to whether doing remote work for a foreign company (with no connection to the United States) is permissible while on B2 status. More broadly, the question is whether any work for a foreign employer while in the United States on B2 status is permissible. For reasons that we will explain, we believe that the answer is categorically no."
There are tons and tons and tons of digital nomads blogs about this. Tons. I'm amazed that SlowBoring commenters seem to have no idea how this actually works.
For one, the US rarely issues B2 visas alone anymore, they're virtually all B1/B2. B1's permissible activities are, again, fuzzy enough to allow you to do basically whatever.
Secondly, I suspect we all understand that there is going to be a difference in enforcement as regards "I spent six months in the US working full-time for a foreign employer while digital-nomading" and "I was here for a family vacation and answered several work calls and wrote a dozen emails in those three weeks".
The actual precedents regarding the former are few and far between, from what I can find, in the US, but the latter doesn't seem to ever have entered anyone's minds to enforce, and I suspect that's because the courts would laugh their asses off at the implication that this constitutes travel for the purpose of employment.
Further, there seems to be more than a bit of a debate within the legal community as to whether there are any *immigration* implications to working remotely for a foreign employer while traveling in the US, vs. merely *tax* implications. The latter would imply that this is legally permissible so long as taxes are paid on income earned from your employer while working in the US.
Of course there will be a difference in enforcement. But look at the post I replied to. It claimed the only thing prevented is
"you just aren’t allowed to take a job *there*."
Are you really, actually disagreeing with me? That the only thing forbidden is taking a US based job?
The comment I replied to wasn't claiming you could check your work email. It was that literally everything is allowed as long as you don't take a local job.
I do not think this is true. Think about academics. Americans go to European conferences all the time. And when they get to Europe they are working on their papers and presenting their findings. There is no way this is illegal.
Academic conferences are explicitly permitted in the Immigration and Nationality Act. And that would fall under a B-1 (business) visa, not a B-2 (tourist) visa. Though nowadays most people apply for a joint B-1/B-2 visa.
I doubt American academics are even applying for a visa. If I was invited to a conference in Italy, I would just go and present.
I also have friends in consulting where the culture is, if you are on a family vacation in Florence looking at Renaissance art and you get a work call, you are expected to answer it. You might even have to leave the museum, go back to your hotel, get on your computer, and do some work on whatever the problem is.
Are these people / firms all breaking the law? I have a hard time believing so
I'm pretty sure that's dependent on specific state and national laws. I know that my law firm doesn't allow people to formally work remotely from some states and countries because the firm doesn't want to deal with the tax implications.
You can work in the EU for 180 days (for a foreign domiciled employer) without owning any taxes. It would be like if you worked for Google in CA and they sent you to Frankfurt to work on a data center issue for two months. You just owe taxes to the US and CA. If you stay for 181 days that’s a problem both due to you overstaying your visa and for tax reasons.
Usually those visa waivers are dependent on you not working, although I would imagine that the kind of work Matt was doing would be subject to some kind of exemption. But I'm not an expert in Italian immigration law.
Not working for a domestic employer. If you work for GE jet engines and they send you to Airbus in France for 2 months to work on an issue - that’s totally fine.
As one of the resident right-of-center folks who comment, I feel the need to register my strong agreement with everything in this column. I think Matt hit all the right points and the increase in IRS funding is the best part of the recently-passed bill.
The included table could just as easily be titled "Respect for the Rule of Law", with the leaders at the bottom of the table. If we ever open up our immigration laws to allow more people into the USA, I would like to see us prioritize people from the countries with high tax compliance.
Seems like a silly thing to worry about. Especially when we have actually useful information about the specific immigrant (years of education, criminal background check, whatever else you want to ask).
The word profiling seems to capture more and more space. Can employers profile on the basis of education? Can they profile on the basis of past experience?
People use the word profile because they know it has a negative perception and if they get it to stick to you then you lose the debate. Regime is this kind of word. There are many others.
Same thing with 'discrimination'.
Sometimes discrimination is a good thing!
"Obviously, education and experience are things an individual has control over. "
Is it really?
Seems downstream of circumstances of one's birth to a decent extent.
Not true, education is influenced by many factors that are outside the control of an individual. Intelligence, wealth, family structure, etc. Education then influences experience (which can also be outside one’s control due to things like social capital).
No, it isn't.
Your complaint is over the existence of nations and borders in the first place.
Which, you do you, but it is a extreme minority view in the US. And the world as a whole.
He's got a drum. It's more than a bit broken, no one likes the sound it makes, and we all wish he'd throw it away, but he is damned well going to keep beating on that freaking thing.
If you have something you believe in, by all means, go forth an proselytize.
But come up with arguments instead of just making assertions.
The problem is that there are no arguments except shitty analogies.
Even sociology, as left-leaning of a field as exists short of gender studies or education studies, has extensive evidence and research on the topic of imagined community. Without a nation-state to wrap up a measure of self-worth in, no one gives a good goddamn about anyone else except for their families and *maybe* extended clan structures. About the *best* you can do under those circumstances is China, where there is no social fabric, nothing resembling genuine patriotism, but a strong government enforces a very wide-ranging legal code in draconian fashion, which kinda sorta keeps people from abusing the shit out of one another. Not well though.
So anyone who keeps telling me the nation-state isn't important or is a form of racism can go find a broomstick to sit on, because I like living in a first world nation and not a clan-centric, war-torn shithole.
John Rawls' 'Veil of Ignorance'. On the other hand, I do believe culture matters, norms matter and we as Americans have a legitimate interest in whether people arriving here from other societies share our norms. This isn't judging people by their skin; it's judging them by what they've been taught by their society, the attack on Salman Rushdie at Chautauqua only the most recent example. If you were born in South Sudan, we can all agree you should be treated as an individual, but we're also likely to suspect you're a religious bigot inclined to kill people who disagree with you. Humans are very good at pattern recognition, and many of us have come to recognize a pattern of bigotry going back thousands of years to the crescent between South Sudan and India.
MattY gives a perfect example of why this is extreme technocratic folly. The tax compliance police state required to peer into his soul and accurately quantify how much of his trip to Italy should or shouldn't qualify as a business expense is a nightmarish fever dream. The tax code is both deliberately and incompetently designed to obfuscate compliance and reward creative avoidance. Matt's desire to pay more taxes without feeling like a sucker is totally incompatible with a system designed from the ground up as a manipulative cat and mouse game of half baked policy goals.
The sort of coherent rigorous enforcement that would obviously be preferable is only a positive in a world where tax burdens are obvious and transparent for everyone and compliance is simple and without breaks, shelters, loopholes, incentives, penalties, deductions, etc etc etc.
You have no idea what you’re talking about. Matt’s example is the heart of tax evasion - people and families getting into the habit of “charging it to the business.”
You're dodging the point though... How deeply into a MattY's life would an IRS agent have to dig to accurately assess just the right amount of deductible expenses he could legally claim for his trip to Italy? The degree of personal surveillance would be enormous, because the things we do or do not expect a business like Matt's to be paying taxes on in the tax code is total nonsense.
If Matt claims it's a deduction then he gets it, because the IRS probably won't come looking and even if they did they'd probably let it slide. Or maybe he's unlucky and gets pulled up randomly, or has an agent assigned to his file that really didn't appreciate him signing the Harper's letter and suddenly he's in for years of harassments and legal and financial nightmares.
And that's how it works because the resources required to actually surveille everyone all the time in detail to ensure the necessary level of compliance fairly and universally would be truly incomprehensibly enormous.
To say nothing of the civil rights implications of it all.
Also ignoring that the code is intentionally riddled with loopholes to enable avoidance by the politicians because the the code is absolutely not actually written or intended to be rigorously complied with by everyone.
It’s not about loopholes that’s propaganda. But rather than use the vacation example, how about a guy with a sheet metal fabrication business makes a Home Depot run because the warehouse needs a new water heater. While there, he gets a bunch of stuff for his home and bills it all to the business.
That’s not about loopholes.
The level of surveillance necessary for robust enforcement is about the complexity of the loopholes. I'm not suggesting that fraud doesn't exist. I'm saying it exists because the busted code covers for it in ways that make truly robust enforcement untenable.
That’s simply not true. It’s mostly just plain fraud. The business buys a new F150. That’s a totally legitimate business expense. The issue is the owner lets his 17 year old son use it exclusively. In the process saving thousands in taxes.
You’re at Home Depot to buy a new water heater for your home. Do you pull out your personal Amex or the business Amex?
travel requires documentation to be deductible (IRC § 274). so the auditor would probably look at what you deducted as travel expense, ask for the receipt, and call it a day.
as for why matt would get selected for audit in the first place, the answer is probably more statistics than surveillance. the discriminant function system probably thought something on his return looked weird compared to other folks in similar industries.
Is the only solution to stop allowing deductions for business expenses? That would certainly bankrupt a lot of businesses quickly.
How about just not abusing the system? All systems are ultimately based on trust. If you're moderate and modest in your use of these "loopholes" you'll probably be just fine.
This system is all about manipulating policy ends and behaviors through incentives and loopholes that all assume one is doing their best to minimize their tax burden. Abusing gray areas is the cost of doing policy through tax code.
"Doing their best" is one way of putting it. "Doing their worst" is another.
Abusing gray areas as a cost of the system makes it sound abstract and passive; it's people making decisions and I'd like to see them make different decisions.
If you take it to an extreme, you may have a point.
We should, you know, not take it to that extreme.
I think you are creating a straw man. Yes, to try and catch every single improver deduction would require ubiquitous surveillance which is exactly why it is not done that way. Instead you select (using a mix of random sampling and heuristics for identifying "suspicious" deductions) a subset of returns and audit them. If MattY deducts the full cost of his trip to Italy then he runs the risk of being audited. If he is, then he has to justify all the individual expenses as business expenses. Ok, he talked to some guy and wrote an article based on that. Does that justify deducting plane fare for his entire family? No "surveillance" is required. Only the burden to keep accurate financial records for your business (especially as it relates to tax deductions).
"If he is, then he has to justify all the individual expenses as business expenses."
Ahh thanks for reminding me of the guilty until proven innocent nature of IRS audits!
I'm honestly not clear on what you think is the correct position here? That nobody should ever be audited? That the number of people being audited now is the correct amount? If you think we have the right level of enforcement now then why doesn't the same argument apply to the status quo? If you think nobody should ever be audited then how do you imagine the government actually should collect taxes?
And also let's be clear about what the stakes are here. It's not like if you get audited and they determine that you made an improper deduction you get sent to prison for 10 years. You pay what you owe plus a modest penalty and it's done.
I don't think having the stakes be lower means it's okay to dispense with the legal principle of innocent until proven guilty. That tradition exists even in criminal trials with lower stakes than the taxes under dispute in an audit. The tradition should be extended to IRS audits. If a deduction is being disputed, the burden should be on the IRS to prove it was improper, not on the taxpayer to prove it was proper.
If that makes it harder for the government to collect taxes, maybe it should develop a more manageable tax system.
You are innocent until proven guilty. No back taxes are collected or fines assessed unless it is determined you have claimed improper deductions.
The burden of proof is on the IRS, but just like in any civil or criminal proceeding the government can force you to turn over evidence as part of making it's case and you have the right to defend yourself by showing the evidence is not sufficient to show your liability or guilt. This is all very normal.
Agreed. I think the fact that the GOP so strongly opposes this is evidence of how they are no longer interested in being the party of law and order. Now they want to also abolish the FBI. Shameful. Republicans, stop making me be a Democrat.
since you are from FL, odds DeSantis wins re-election 90%?
I wouldn't go that high -- anything can happen. I would guess probably 75-80%. Admittedly I live in a mostly Republican county, but he is insanely popular among the folks I know.
Nate Silver has it at 92%. 80% by polls alone
His continued flights out of state to campaign for extremists is going to get him in trouble. It's going to be easy to run the "Ron doesn't want to govern Florida, he wants to run for POTUS" campaign.
I don't know how much the governor's race correlates with the Senate race there despite both being statewide races, but 538 has Rubio at 85%, so your percentage sounds about right from an outsider. Wish they had more data to crunch governors' races effectively.
He’s considerably less popular in Miami-Dade than he is statewide. The Miami Herald hammers him constantly.
The Scottish teens have him at 92%
https://www.predictit.org/markets/detail/7211/Who-will-win-the-2022-Florida-gubernatorial-election
The IRS/police analogy is not a great one. Citizens enjoy *much* stronger due process protections when dealing with police than they do with the IRS. The police are not entitled to come into my house and rummage around in hopes of finding evidence of wrongdoing; nor can they require me to make detailed, costly reports of my whereabouts with enormous penalties for even inadvertent noncompliance.
Of course taxes are the cost we pay for civilization. But America tries to do far too much with its income tax, and the result is a complex nightmare that terrifies even honest taxpayers.
My understanding (and seemingly confirmed by some quick googling) is that underpayment penalties are fairly modest. Only deliberate tax cheats risk significant consequences. Is there something you can point to that suggests otherwise?
Matt is clearly talking about deliberate tax avoidance efforts that are not taken in good faith. For example, as a kid, a small business owner paid me half in cash and half on the books. Conversations I’ve had with others confirm that this is fairly widespread. In the aggregate it can be a significant drain on public resources. And those business owners obviously know they are breaking the law.
If you want an example of an area that carries stiff penalties merely for failing to comply with complex reporting requirements - even without underpayment of tax - look at requirements that touch on international tax such as the FBAR and form 8938.
Yes, it looks like there are penalties for failing to report foreign bank accounts even if the violation was not willful. I don't think this is something that applies to very many small business owners but I concede that you have provided an example.
They don't just demand you report foreign bank accounts you own, you also need to report foreign bank accounts that you have signing authority on - a tactic that puts many non-small business owners at risk of the penalties just because they happen to work in accounting for a company with international assets.
Oh hell yeah. And also google "FATCA"
“…small business owner paid me half in cash and half on the books”
Yeah, it’s hard for me to look at the overall structure of federal tax code and conclude that enforcement is the biggest problem.
I had a job like that once, too.
I must have missed the left wing strategy meeting where they were urging people to get a job at the IRS so they could use it to push critical race theory. Beurocrats are just people working their jobs, and in places like the state department and the FBI they tend to be more right-of-center. If you believe (with no evidence) that the left has somehow taken over the beurocracy then go become a beurocrat and take it back.
Very much this. If the analogy is going to be to the police, shouldn't the IRS be subject to the same restrictions we impose on ordinary law enforcement? The whole premise of why they are not subject to those strictures is the notion that they are an administrative agency, not law enforcement, that compliance is mostly voluntary, etc. Thank you for capturing what is wrong with the "tax police" spin.
Yeah, I kind of hate to say it, but these arguments are correct. The regular police need probable cause to investigate you. They need a magistrate to sign off before they can force you to turn stuff over to them. An audit is different because there is a certain level of randomness to it, and the IRS doesn't need permission for anyone else to open an audit. Now as I understand it, audits aren't entirely or even mostly random - the IRS uses certain criteria for detecting who's more likely to be a tax cheat and who isn't. But most people don't know this and don't trust that there are safeguards.
I support increased IRS funding, and the Republicans are in fact trying to exploit people's fears in bad-faith ways, but those fears are real. It's not just tax cheats who don't want to get caught.
It is akin to the NYC "stop-and-frisk" policy, which I can understand why people would oppose being applied equally to all strata of society.
However, I supported that policy -- I thought its benefits outweighed its costs. I also support more tax audits for the same reason. I just hope the auditors go after lots of areas of cheating -- conservation easements, bogus non-profits, inappropriate deductions, EITC cheating and all the rest.
I think they do investigate a lot of suspected EITC fraud, though. Apart from any question of fairness, auditing lots of poor people seems like an inefficient use of resources.
Maybe. The thing about EITC fraud is that it's also easy to check and doesn't require a ton of resources. The computer can do most of the work for you. You don't need an agent combing through receipts etc.
Matt Hagy's comment looks definitive so I'll defer to him
This was a contributing factor to why I didn't bother trying to get the EITC when I technically qualified for it while in law school -- at least in the early 2000s, EITC recipients were being audited at a dramatically higher rate, so I figured it was worth forgoing the money to minimize my risk of an audit.
It's almost as if that's the intent of the audits, isn't it?
I'm reminded of this:
https://www.npr.org/sections/coronavirus-live-updates/2020/08/06/899893368/gov-says-floridas-unemployment-system-was-designed-to-create-pointless-roadblock
Bull. Cops don't need probable cause to investigate anyone. They need PC to arrest you. They need PC for a warrant, although there are many, many situations where they can search a person or their property without PC. But if they want to investigate, they just do. They can follow you all day long, talk to everyone you talk to, surveil your house, run a background check, search or seize any property you abandon, etc. The IRS aren't as a matter of course, doing anything violative of the Fourth Amendment. And the consequences of getting caught are only criminal for those who had intent.
That's a fair nuance, I was a little too breezy there. But an audit is more invasive than any of those things you mentioned, which are just going around gathering publicly available information. That is why, absent actual police misconduct (which of course does occur - racial discrimination or what not - but represent abuses of power, not the system running as designed on paper), regular people fear the IRS more than they fear the police.
I disagree that an IRS audit is more invasive than “follow you all day long, talk to everyone you talk to, surveil your house, run a background check, search or seize any property you abandon, etc.”
My spouse’s small business was audited a few years ago. The accountant handled most of it, there was a several hours-long interview with the agent at an appointed time, and then about a month later the agent called to say the IRS owed THEM about $800 they’d overpaid. I think it only escalated into something truly nightmarish if the agents discover after a cursory investigation that you’re actually doing bad things with your books. In which case, I don’t feel that bad for you.
I don't fear the police much but I fear the IRS much less. Maybe it's just that I've never been audited, I don't know anyone who has, and I don't feel I've done anything wrong or shady on my taxes. I've also never even heard an IRS "horror story" 3rd hand. An audit sounds like a pain in the ass but so does jury duty and so does being questioned for randomly matching the description of a wanted criminal.
Do normal people really fear the IRS? Am I an outlier?
I mean, they haven't actually audited hardly anyone for many years now, so that may have something to do with it. In past decades it was more of a cultural trope.
"the IRS uses certain criteria for detecting who's more likely to be a tax cheat and who isn't"
There's a word for this kind of thing - profiling - something we rightly frown upon when law enforcement engages in it.
This is equivocating quite a bit of what "profiling" means. We rightly frown upon racial profiling but if the police decide to focus an investigation into a bank robbery on people in the area who have robbery convictions then we don't, nor should we, frown on that even though it is "profiling" by your definition.
I would counter that focusing on people in an area with robbery convictions is going to end up being little better than racial profiling by a different name in a lot of places.
Even if we granted that it's okay to profile based on past criminal convictions, most of the IRS audit criteria is going to be focused on perfectly legitimate characteristics that they unilaterally and secretly deem shady. I will continue to frown at that as illegitimate profiling.
> most of the IRS audit criteria is going to be focused on perfectly legitimate characteristics
I'm not sure why you think that is obviously the case.
There are all sorts of ways to identify potential fraud that have nothing at all to do with profiling. An analysis using Benford’s Law, for instance.
That's numerical profiling!
It is hard to deny that some numbers just _are_ worse than others.
The idea that I should have to file a form every time I pay a vendor $600 is simply absurd. If I ever get dinged for not doing that, I might become pretty Republican pretty fast
If you're doing it all the time it's going to be a significant amount of money. And you should also develop a very efficient process for filling out the form so that it becomes easy. And the 600 is a minimum, so this is going to apply to payments of 6,000 or 60,000, too.
If you're paying just over $600 just a couple times a year I'm a bit more sympathetic but it's also not a huge burden. Maybe the 600 amount should be raised or it should be somewhat simplified, but I'm not about to "become a Republican" because the process of paying taxes has a single inefficiency I don't like.
Apparently that $600 cutoff dates all the way back to the very first statute creating the 1099 requirement in 1954. In 2022 dollars that would be around $6000. I'd be OK with raising that cutoff to account for inflation.
The US tax code is shot through with inefficiencies. Estimates of the total tax compliance cost for the US economy vary quite a lot, but the GAO allows that 1% of GDP is probably the lower bound:
https://www.gao.gov/assets/a247540.html
Maybe some of the customer service money from that $80 billion can go into smooth as butter reporting techniques.
Having to file a separate form seems absurd, but it doesn't seem absurd to require you to keep a receipt in case you are audited.
I don't know if this is an argument for less enforcement, or an argument for tax reform.
I know a guy who went from having a full ride college scholarship to being homeless because he got in a fight (he was trying to protect a friend, didn't initiate the fight). No consequence will ever be that extreme for someone who cheats on their taxes. Do some professionals have to pay a fine? Poor babies!
This is an important difference. And the other important difference is that taxation has a much bigger gray area. It’s pretty much black and white to determine if I’m speeding in my car or robbed a store at gunpoint. By contrast, whether an income reducing deduction is legitimate or not can actually be complicated. And the IRS often does not tell you what is or isn’t legitimate.
So while I’m in general agreement that funding the IRS fully to make it a function well, the best way to do things is to make tax compliance simple and black and white. Then you don’t need as much enforcement and there are fewer creative ways to “cheat.”
I am a CPA specializing in partnership taxation, and the idea that the IRS is this draconian police force that kicks down people's doors to drag them off in cuffs when they make a mistake or miss a payment is simply ridiculous. The IRS gives people tons of due process and people who go to jail are usually those who persist in tax cheating for years after being given many chances to do the right thing. For most people the IRS aduit rate is so low that they have very little chance of ever actually meeting an IRS agent in their entire life.
What noticed about the people who get into legal trouble with the IRS is that they are small business owners who will use payroll or sales tax funds due to pay bills when they are having a bad month. Then they don't really ever catch up and it becomes this snowball effect of underpaying taxes and cooking books to cover it up. They eventually get caught and then pull out the waterworks about how the government is trying to ruin them.
> So you can be as cynical about the IRS and its agents’ motives as you like, but unless they are being specifically pressured by congressional Republicans to focus their audits on the poor (which they do tend to do)
I’d like to contest the point that the poor are being disproportionately audited out of spite as reported in that WP piece. [1] From that article
> That is partly because the lowest-income filers are the ones getting the most enforcement: Households poor enough to receive the earned-income tax credit are five times more likely to be audited than higher-earning filers, according to research released by Syracuse University’s Transactional Records Access Clearinghouse.
From what I’ve read, EITC audits are pretty simple and result from automatically detectable errors. A common example is two tax filers both claiming the same dependent child. This is trivially easy for the IRS to detect since you have to list the SSN of claimed dependents. And the IRS has found that EITC errors are quite common. [2]
> Over 26 million taxpayers receive over $64 billion in EITC benefits. The National Research Program (NRP) estimates that approximately 50% of EITC claims have errors and the $18.1 billion improper payments account for almost half of the $40 billion portion of the tax gap attributable to credits.
> In FY 2017, risk-based scoring identified about 6.4 million returns as claiming a potentially erroneous EITC due to a qualifying child issue or misreported income.
> The IRS planned to audit approximately 300,000 EITC returns for over the past 5 years and plans to continue to audit about 300,000 returns each year in the future. EITC correspondence audits are the most efficient use of available IRS examination resources with the average time to complete the audit of 5 hours per return.
Further, almost all EITC audits are correspondence audits; a small-scale audit where the IRS mails a form explaining the issue and asks the filer to either provide some proof or pay the difference of a revised tax filing. [3] These don’t take a lot of time and further provide the necessary clarification to prevent the same mistake in the future.
There is still a lot that could be done in terms of tax filer education, or even better an IRS-funded tax filing website. Similarly, with more funding for customer support the IRS will be able to provide more time in answering questions and helping people file the correct taxes initially. Here’s a good critical review of EITC audits and proposals for improvements, The Long Read: Auditing earned income, https://tax.thomsonreuters.com/news/the-long-read-auditing-earned-income/
[1] https://www.washingtonpost.com/opinions/2022/04/15/frustrated-with-irs-call-republican/
[2] https://www.irs.gov/newsroom/irs-update-on-audits
[3] https://www.irs.gov/charities-non-profits/correspondence-audit
Huh, I've gotten a letter from the IRS saying "we think you bonked this line wrong, and you owe Uncle Sam such-and-such". And I cut 'em a check, because I trust their paperwork more than my own.
It didn't even cross my simpleton mind to refer to this as an "audit", but I guess it must have been.
I had the same experience. I goosed up the child tax credit because I missed some of the prepayments they did, so I claimed the wrong amount. The IRS sent me a letter saying that I goosed up and that I should pay for the part of the credit I wrongly claimed plus a paltry amount of interest. I checked their math, cut a check, and problem solved.
That said, getting a letter like that initially scared me because the prospect of a real audit sounds unpleasant.
Audits were a television trope of the '80s and I think that colored how I thought about audits. Now I realize that the IRS doesn't want to waste their resources so of course "hey, your math is wrong. Just pay this," would be the optimal way to solve the issue under the current suboptimal system.
I do get that nervous twinge when I receive an IRS letter but it's contained either a check or something neutral/expected every time I can think of.
The “just pay this” approach has its downsides. I’ve got two of them from states in the past few years — both of which I think were bogus (for different reasons). However, neither was for enough money to be worth my time to contest, so I just got annoyed and payed up to make the problem go away. There was no human contact first, so there was no way to sort it out without my filing a bunch of paperwork after they sent the bill.
Definitely a downside for some and I would not be shocked if states are worse than the feds here. I personally value my time above almost anything else (and avoid dealing with people over the phone) so having an option to just make annoyances go away with small amounts of money and no human interaction is a plus to me, especially if I might be in the wrong. But that's obviously my own bias.
Of course, it also shouldn't be an invitation for petty extortion, lazy or shoddy work, or using bureaucratic paperwork as a cudgel to prevent an appropriate outcome. Lord knows there's enough of that happening whether the government is involved or not.
Getting a letter from the IRS is very scary, but my hot take is that my customer service experience has actually been pretty good.
I had a fun one once where I accidentally filed a previous year's schedule A (itemized deductions) with a current year's 1040 (I had them open side-by-side to compare). They caught the error and sent me a letter saying I screwed up on my 1040 and owed some small amount. I called them and after waiting for about an hour on hold (the worst part of the process), I spoke to a delightful woman in Kansas who, after some painstaking checking line-by-line, figured it out. We both had a good laugh about it. It definitely left me with a generally good impression about them.
The EITC is very easy to fuck up and is way too complicated and the GOP is absolutely culpible for that. They have long opposed simplifying it and having the IRS just do people's taxes and send them a letter telling them what their rebate is.
Democrats have had control of both houses of congress and the Presidency during Obama's term, and currently. If the Democrats wanted to change the EITC, there is nothing Republicans could do to stop them. It fits perfectly into any reconciliation bill as the IRA was.
You can't use reconciliation to make the IRS do people's taxes. Reconciliation is for changing the *amount* of taxes and spending, whereas that would be a new *program* that you'd need to pass a regular bill to create.
Changing or simplifying the EITC -- an existing program -- could be done through reconciliation, which is how I read the original comment.
I actually think you could. So long as you could provide a reasonable basis for it increasing or decreasing revenue to the government.
It makes as much sense as the US government being able to cap drug costs, or create a program to provide subsidies for clean energy using reconciliation.
The main opposition to this comes from Republicans, but yeah Democrats should have fixed this during the Obama years and should repeal the filibuster and fix it now. Part of the difficulty is that it would cost money which means raising taxes on some people.
A government funded tax filing app would be good for everyone other than certain accountants.
I also do appreciate when ProPublica goes hard on TurboTax (maybe not the specific rent-seeking accountants you had in mind). As easy as it was to mock Paul Ryan's tax postcard, it should be achievable for most people, just not how he intended it.
We accidentally claimed full dependent's expenses after ALSO receiving an advance child credit from the IRS, and got a quick letter from the IRS complaining about this. I looked through my records, agreed with their assessment and sent them a check. I don't think they assigned a fine - just the money I owed.
Does this get counted under the "audit" statistics?
I did a quick Twitter thread on this (you can find it here https://twitter.com/dilanesper/status/1562025435516440576 ) but my basic problem is more with the way this is being sold than the actual thing itself:
1. I don't deny people should pay their taxes, and small business people who overclaim expenses should face audits. So I don't even really think I oppose the bill.
2. Stop with the "tax police". That's just juvenile spin. If saying "the IRS", a totally value-neutral term, reduces the popularity of what you are arguing, that should be a meaningful data point for a writer who cares about popularism.
3. Matt goes on and on about Italy, but his own data shows that even with the tax avoidance we have, we are not Italy. Indeed, despite the fact that Republicans have supposedly defunded the IRS for 30 years, we still... collect most of our taxes compared to other countries. Where's the crisis?
4. My real problem with all of this is that it is being sold as some attack on super-rich people who have complex tax shelters and such. But the problem is, the Democrats want to use this to raise revenue so they don't have to pass an open tax increase. And to do that, they have to go after small businesses, because that's where the money is. Which is... fine, I guess. But it makes the spin very dishonest.
The Republicans offered an amendment that would have limited the new enforcement to taxpayers making over $400,000. The Democrats voted it down. That was telling. They need to be able to go after upper-middle class small businesspeople, or this won't raise any money, because when you take on the very rich, the enforcement costs are huge- they hire good lawyers and fight.
So in the end, this is basically just an attempt to collect more taxes from small business. Which is fine- they owe them. But it isn't this great righteous crusade against tax evasion by the very rich. Such a crusade will cost real money, and the Democrats want this to count as a stealth tax increase and won't do that.
All people should be paying the taxes they owe, not just people earning over 400k.
Part of my point is that all of the people won't be subject to that, because if the mandate is deficit reduction, the focus is going to be on the small business people who the wonks say offer a good return on the IRS' enforcement investment. If they spend this money going after the super-rich, they won't recover enough to meet the revenue targets.
Again, I am not saying small businesspeople shouldn't be forced to pay their taxes, but this should be seen for what it is (a way for the Democrats to get some revenue in the CBO scoring) rather than a grand statement of the government's intention to enforce tax compliance across the board.
> If they spend this money going after the super-rich, they won't recover enough to meet the revenue targets.
Is there any evidence that a substantial number of rich people are cheating on their taxes? While there are certainly some individuals engaging in criminal tax evasion—possibly in context of other financial crimes like embezzlement and money laundering since they want to hide the proceeds of their crimes—I doubt this accounts for a significant amount of missing tax revenue.
Most rich people have highly-tractable income and have their finances managed by highly-informed accountants and lawyers. While the rich engage in substantial amounts of legal tax avoidance, I doubt few of their hired financial professionals are willing to help them engage in criminal tax evasion.
There's certainly a lot of evidence that rich people engage in all sorts of dodgy tax shelters, misclassification of income, and other schemes to evade taxes. Those accountants and lawyers often push the limits.
And you WANT an IRS who is willing to take them on, litigate, sometimes win and sometimes lose, and create some deterrence. If you know that if you push the limits, you are going to have a dogged IRS fighting you every step of the way, and labeling you a tax cheat in public, that could very much help with the norms Matt is talking about.
But doing THAT won't get you a CBO score, and since this bill is supposed to help the Dems avoid passing something labeled a tax increase, we can't do it that way.
While I agree that illegal tax evasion occurs and further agree that it should be investigated and prosecuted, I don’t believe this occurs at any significant rate. Most rich people just don’t have the opportunity to hide their income since they’re moving massive sums of money through major financial institutions that properly report all of these financial transactions.
E.g., when Bezos sells $1B of AMZN he doesn’t get the proceeds in duffle bags of cash. Instead the transaction occurs electronically through brokers and banks that are reporting everything to the SEC and the IRS. Similarly, almost all transactions that rich people engage in occur through similar systems with electronic paper trails and automatic reporting to the government.
You mention “dodgy tax shelters”, but there are legal tax shelters and they require a substantial amount of registration and reporting. E.g., a trust is a legal entity that must conform to various federal and state law, including tax law. The structure, beneficiaries and contributors are all registered with the government and all financial transactions are subject to reporting. There just isn’t any shadowy area to hide anything.
I have come across letters from tax lawyers to rich people in my law practice. LOTS of tax shelters aren't nearly as "legal" as you are saying; it's more that the IRS exercises enforcement discretion and doesn't pick fights with powerful people.
At any rate, it's much better to fight like heck against the super-rich and lose sometimes than not to fight at all.
You’re wrong. Most of the wealth in the US is held in closely held private businesses. They have myriad ways of hiding income.
A common example is renovating your house and having the business pay for it.
I took one tax law class and the professor was a former IRS lawyer. My biggest takeaway was that, at the level of larger businesses and wealthy individuals, tax practice becomes much more of a negotiation instead of law enforcement. The accounting and tax structuring get very complex and there's a lot of back-and-forth between the IRS and the accountants and lawyers in the private sector about which structures will be allowed and how aggressive they can be in minimizing taxes.
My understanding is that the IRS side of that negotiation has suffered greatly in recent years with budget cuts, retirements, and loss of expertise. They're now intellectually and legally "outgunned" by high-dollar private sector tax pros and are getting run over in negotiations.
So the way to think of additional IRS enforcement funding in regards to the wealthy and larger businesses is less that it will help catch criminal behavior and more that it will buy better legal representation for the government's side of the negotiation. But that can and should still result in higher tax collection from those taxpayers.
It may, but it looks like what the Democratic wonks are looking for is to go after small business (with a certain return) rather than to put more money into IRS negotiations/prosecutions of very rich people (with a more speculative return). Because they want this to score well with the CBO so they can avoid having to pass a tax increase.
This encouraged me to go read the CBO score link in the article. I read it as CBO anticipating that IRS will spend the additional enforcement money in line with it's current enforcement priorities. They then adjust for an assumption that IRS is already prioritizing the highest-ROI enforcement, so further funding will have a lower marginal ROI.
So I don't think this is scored in a detailed line-by-line analysis. Rather, current priorities plus an arbitrary (though reasonable) adjustment.
Meanwhile, IRS discusses it's enforcement priorities here, which includes the line "The IRS is increasing focus on non-compliant, high-income and high-wealth taxpayers, business partnerships and large corporations that make up a disproportionate share of unpaid taxes."
https://www.irs.gov/about-irs/enforcement
And it looks like they've added some performance indicators about doing more exams of such taxpayers, on p49 here. And yeah, performance has been bad and getting worse recently.
https://www.irs.gov/pub/irs-pdf/p4450.pdf
So I'm optimistic they will really do more of that, as they say they plan to.
> I doubt few of their hired financial professionals are willing to help them engage in criminal tax evasion.
In fact, isn't that what Allen Weisselberg is going to prison for? (I guess he benefited too.) I agree it's almost certainly pretty rare.
He’s going to prison because he personally evaded paying taxes.
Especially since if a lot of "small business owners" stated their income correctly, in a lot of cases, they would exceed 400k.
I am calling bullshit on the argument that we should just raise taxes instead. The tax code is complex mostly because we make political decisions to favor certain types of income and taxpayers, be it capital over labor, homeowners, farmers, ranchers, real estate investors, state tax payers, etc. Lowering enforcement and raising income tax on everyone is literally favoring dishonest people over honest people. There would be costs in getting tax compliance to 100 percent that are obviously not worth it (you probably need a totalitarian state), but improving enforcement on the margins saves the average taxpayer money at the expense of tax cheats.
Absolutely, raising rates and allowing enforcement to weaken is equivalent to the "low risk of arrest, extreme sentences when caught" strategy in criminal justice, bad idea.
Hi Dilan, just wanted to give you a welcome here, and say that I've long enjoyed your comments dating back to when you posted at LGM, as well as your tweets that I've increasingly read as you interact with Megan McArdle over there. I don't always agree with what you say but you regularly give a thorough challenge to people's arguments, and that's something that should be appreciated more.
I'm not familiar with Dilan anywhere else, but I second your comment. He's bringing a nuanced view to this discussion which, though I don't agree with him, I do appreciate.
One other thing I'll note (and I say this as a full compliment to Dilan) is that, being a good lawyer, he's very argumentative. Discussions with him will tend to be very thorough, as I'm already seeing in some of today's subthreads.
Thank you!
>>Indeed, despite the fact that Republicans have supposedly defunded the IRS for 30 years, we still... collect most of our taxes compared to other countries. Where's the crisis?<<
I agree there's no "crisis" as such. But A) we need money to fund decarbonization efforts; and, B) given inflationary pressures, clearly we can't put it on the national credit card at this time; and, C) a broad-based carbon tax is a nonstarter.
So getting rich people to actually pay what they owe seems reasonable under the circumstances. And when they don't pay what they owe, by definition that makes the tax code more regressive, which hardly seems like a good state of affairs given the country's serious economic inequality issue.
PS–Per Arnold & Porter: "The IRA notes that none of the IRS appropriated funds may be used by the IRS to increase taxes on taxpayers with income below $400,000. The Congressional Budget Office estimates that such measures allow the IRS to raise $124 billion in revenue."
So, I'm not really sure about the GOP amendment you mention.
'https://www.arnoldporter.com/en/perspectives/advisories/2022/08/inflation-reduction-act
We could just raise taxes you know. Ordinary, everyday income taxes. That's how you are supposed to raise revenue.
If you are going to do tax enforcement, your goal should NOT be to raise revenue. It should be to punish the worst tax cheats.
Since we are analogizing to the police, do you know what happens when you give police revenue targets? A lot of policing of traffic offenses that bring in revenue, and not enough resources devoted to stopping serious crimes. That's at the center of the problem here- the Democrats are politically afraid to just go out and raise taxes on rich people to pay to fight global warming, so they need this to be a stealth tax increase, and to do that, they can't go after the super-rich and their tax shelters. It has to focus on small businesses instead.
(And I don't know what Arnold and Porter is reading, but they rejected the amendment to limit enforcement to taxpayers making over $400K. https://www.carolinajournal.com/house-rejects-budd-murphy-amendments-against-new-taxes-on-incomes-under-400k/ )
>>If you are going to do tax enforcement, your goal should NOT be to raise revenue <<
Why on earth not?
If you are going to do any form of law enforcement, should your goal to be to raise as much money as possible, or to prosecute the most egregious cases of wrongdoing even if it costs you money?
Again, there's a conflict between the "tax police"/law enforcement/going after wrongdoers spin and pursuing revenue goals. Good law enforcement does not pursue revenue goals- it goes after the most important crimes and spends money to do it.
Good law enforcement pursues *compliance* goals. Punishment is irrelevant. In the case of the tax code compliance *is* revenue.
Funding tax code enforcement to increase revenue is like funding traffic law enforcement to decrease injuries and fatalities.
They’re not making the revenue off fines - they’re making the revenue off people not cheating.
With traffic enforcement, compliance is revenue too! So is asset forfeiture and a whole bunch of other abusive law enforcement practices.
As for your distinction about future conduct, (1) nobody knows what the future will bring (as Matt Yglesias concedes in the OP) and (2) it seems to me that going after brazen super-rich people would carry massive deterrence benefits too. There's no reason to think that targeting small business expense deductions will get you the best future deterrence bang for your buck.
The point is, the things that bring in law enforcement the most money are not always the best law enforcement. If you actually care about enforcing the law, you spend money, pick the most egregious targets, and don't worry if you get your money back or not. But you can't get a CBO score that way, and you might have to ask the voters for an overt tax increase.
This isn't an exact match since money is owed no matter what, but this goes back to what I was saying last week about being bearish about Pigouvian taxes due to being inherently conflicted between revenue generation and stopping the consumption of a good or service.
Sorry, your thinking is that the purpose of law enforcement is to arrest the worst criminals? You don't think it should be about reducing the number of occurrences of theft, murder, rape.....
In theory* we could raise taxes more, but, if we're leaving money on the table because of lack of compliance, rectifying that situation seems reasonable. Also, the IRS really is in a horrendous state from everything I've read and (occasionally) personally experienced. This WaPo piece highlights some of their woes:
https://www.washingtonpost.com/opinions/interactive/2022/irs-pipeline-tax-return-delays/
Sounds like they really do need a cash infusion!
*The IRA does raise taxes—on corporations. I suppose if Democrats could find the votes they could raise taxes even higher, but again, what's wrong with stiffening enforcement?
We aren't leaving money on the table, or at least not as much as the wonks say we are, unless you believe that the super-rich should be above the law. It's like saying we are leaving money on the table by not reassigning all of our homicide detectives to do traffic enforcement!
I'm not familiar with that amendment. I do think it would be politically wise for the Biden Administration to unilaterally put in some regulations or policies to handcuff themselves from going after people who aren't super-rich. But it would have to be done in a thoughtful way. One problem with simply having a flat income minimum for an audit is that the minimum would need to be based on reported income, and the whole point of doing a tax audit is to detect those people who are underreporting their income! So that could end up just serving as an invitation for fraudsters.
https://www.reuters.com/business/yellen-irs-no-increase-middle-class-audits-if-irs-gets-more-funding-2022-08-11/
"U.S. Treasury Secretary Janet Yellen told the Internal Revenue Service on Wednesday that if the Inflation Reduction Act became law additional IRS resources should not be used to increase audit rates on taxpayers making under $400,000 a year"
They've already done what you're saying they should do!
Woo hoo! Clearly it's because they knew I was thinking it. You're welcome, everyone.
See my comment above. The Yellin statement looks like political spin, after they killed the statutory language that would have actually been enforceable.
Wouldn’t that statutory language have killed the bill, because any amendment of that sort would break the reconciliation process? That is my understanding of what happens when an amendment is brought up during vote-a-rama.
It wouldn't have killed it necessarily, but the Dems would have had to ensure everyone in their caucus would vote for it. In other words, the amendment's failure indicates the Democratic caucus decided it couldn't pass a bill that limited enforcement in this way, probably because it would result in a lower CBO revenue score.
As I said in my very first comment, I am not even sure I oppose the bill. I have no sympathy for small business people who cheat on expense deductions. But I don't think it's this great blow for tax fairness- I think it's basically an attempt by the Democrats to raise some quick revenues while taking the political heat for passing a tax increase. I'd like to see a bill that spends money and targets the super-rich and their tax shelters and avoidance schemes.
I guess I just don’t see how limiting the reach of the bill would increase fairness.
> But the problem is, the Democrats want to use this to raise revenue so they don't have to pass an open tax increase
I think part of the issue is that if you can't effectively enforce existing taxes on small businesses then you end putting a more and more disproportionate share of the tax burden on wage earners . I've seen this a lot with colleagues who work in the EU. They are relatively highly paid software engineers who almost always work as contractors for tax reasons. But most people aren't in professions where that is possible so they end up bearing the brunt of the tax burden for the entire country.
"U.S. Treasury Secretary Janet Yellen told the Internal Revenue Service on Wednesday that if the Inflation Reduction Act became law additional IRS resources should not be used to increase audit rates on taxpayers making under $400,000 a year"
https://www.reuters.com/business/yellen-irs-no-increase-middle-class-audits-if-irs-gets-more-funding-2022-08-11/
Her statement is part of the reason I distrust the government.
We just passed a law through the Congress. And then an unelected executive branch official says "we aren't going to follow the law and will only enforce it on politically unpopular people". Like when Obama implemented DACA or other prosecutorial discretion implemented for political purposes, when I don't trust enforcement will be fair, I lose faith in the government overall.
So... I agree with you in principle, but I'm not sure it applies here.
If there's _one_ thing that I think the IRS can prioritize on when deciding where to go look for revenue, it's the amount of revenue we're talking about.
If cops decided to only chase speeders who were exceeding 5 MPH over the limit, you might agree/disagree, but it wouldn't strike me as using prosecutorial discretion to go after politically disfavored people - it's tied exactly to the enforcement goal.
I feel like on some level you ought to understand that the executive has to be in the business of prioritizing and exercising discretion. Do you think that plea deals/bargains are similarly evil and that we should prosecute every single misdemeanor to the fullest sense of the law, no matter the details/resource and time constraints?
This is a motte-and-bailey argument.
She didn't make that statement due to "resource and time constraints". It is a political statement that the law won't be applied as written.
Idk what to tell you man. Prosecutorial and executive discretion are pretty basic aspect of any political system.
Have a great day.
Imagine that a Republican administration suspends enforcement of federal gun laws in the Southwest because "citizens don't need to worry about the government getting on their backs when criminal illegals are running by their homes in the night" or something. Just prosecutorial discretion, I guess!
It's the difference between good faith discretion -- "We have limited resources and will focus them on the most important issues" and bad faith discretion -- "We will focus our resources on a disfavored group of people".
Idk what to tell you either.
The Democrats voted to keep that language out of the statute. Doing it through Yellin means (1) it will be hard to sue the IRS if the agency violates it and (2) Yellin or her successor can always reverse it and start going after middle class or even working class taxpayers.
That looks to me like an act of political spin. They could have agreed to an actual statutory restriction, but they didn't want one because it would lower the CBO score.
To point 3, I believe the current underfunding of the IRS is not widely known. Also people who give tax advice to businesses (CPAs and tax lawyers) are technically bound not to advise people to cheat, but without some likelihood of audits the ethical ones will lose out more and more to those who advise cheating.
Finally, the current status where we have a lot of well functioning/fast growing/large companies means most companies are currently employing mostly above-board accounting practices, but will that be true for the next wave of businesses? Institutional deterioration could take time... though like you say it could also not happen I suppose.
Another provision of the IRA: America may soon join other high income countries in providing a free, "pre-populated," e-forms filing service. This link suggests about half the country would benefit (a feasibility report must be provided to Congress within nine months):
https://www.propublica.org/article/files-taxes-free-inflation-reduction-act
It's not clear to me whether the IRS can proceed do this after the report is filed or not. I'm assuming it'll take further congressional authorization. Intuit, by the way, are some of the most brazen rent-seekers on the planet.
This is what should have instead been the centerpiece of this part of the bill. Intuit delenda est.
You have an unfortunate typo in your last sentence that makes it almost sound racist. (“Inuit” for “Intuit”.)
Those Alaskan natives aren't subjected to lots of laws around hunting and fishing, so I assumed Jasper was really upset about their unlimited harvesting of silver salmon.
You know, that's not the first time I've done that, even on this site! That's embarrassing. Apologies to anyone I may have offended.
Does this have anything to do with why all the commercials on conservative TV and Radio growing up were for tax lawyers?
DO YOU OWE THE IRS 10, 20, even 30 THOUSAND DOLLARS? Call Bob’s discount tax dodging emporium!
Says a lot about their viewers if this is one of the main industries advertising in those markets.
That's interesting. It might indicate that far-right politics doesn't just attract dishonest people in general. It might disproportionately attract people who are dishonest and got caught.
Maybe that experience gives you a specific type of grievance against society, and not the type that makes you vote for Bernie Sanders. At least that was my reaction when I saw this:
https://www.washingtonpost.com/business/2021/02/10/capitol-insurrectionists-jenna-ryan-financial-problems/
Trump is very much the king of shysters so it's no surprise that his success would attract fellow travelers. And I've certainly known "libertarians" who have been a bit too proud about evading taxes and painting it patriotically. It's an identity I do not understand at all.
Once one has entered the taxation is theft rabbit hole it's difficult to get out of it.
My stepfather has a small logging and transport company, and he really struggles to determine his tax payments each year.
He just isn't organized and educated and tech-savvy enough to do it. And he's the type that doesn't want to deal with the hassle of trying to cheat on his taxes.
He does a blue collar job and employees a small number of other blue collar people, and he just can't handle the paperwork.
Anyways, if I think of a county of folks like him (rural TN) and his workers, I can see how that industry would come into prominence.
Those were services to negotiate with the IRS about how much of your back taxes you will pay and when. Which is totally something you could (and still can) do, e.g.:
https://www.irs.gov/payments/offer-in-compromise
I'm not at all sure that hiring Bob as an agent to negotiate would get a better result than trying to negotiate yourself, and especially not better-enough to justify Bob's fee. But I guess it might? And the business model is taking advantage of the fact that people are afraid of the IRS and don't know negotiation is an option.
The real tax dodging happens on the front end, before you get the bill in the first place!
Bob has 2 businesses. One is helping you dodge taxes; the other is helping you when you get caught. Bob has his bases covered.
Good lord, I just want better customer service. I run a business and have a couple over the years. I’ve been audited several times and the money I’ve spent on financial and legal advice is painful. So much time just waiting on responses to questions and letters. Going through an IRS audit feels like traveling back to before email or phones were invented.
They're awful. Try living abroad.
As someone who’s still waiting for their 2019 tax refund, I’m very excited to see $20 billion go into customer service.
I have two brothers in law that run successful businesses. One runs restaurants, and one as a contractor business. I also know a whole bunch of other small business owners. Let’s just say that shenanigans are fairly common. Legal and illegal.
The contractor brother-in-law is so successful he is having issues spending enough money. He’s in a race before December to put up a new steel building. By a backhoe. And a dump truck.
There is still people working in the restaurant industry they get paid under the table, though this is actually way less common now. Credit cards have made things like this harder. There is just less cash to have a free hand with. Also there are a lot less purely illegal immigrants than there have been in the past. This partly contributes to the labor shortage.
My wife actually used to own a restaurant and run it. She had a big run-in with the IRS which in part prompted her to sell the business because she didn’t like the stress.
One of the biggest problems is that our tax code is so complicated. Every complication is an opportunity to look for loopholes or shenanigans. I agree that we should fund the tax police, but we should also consider simplifying our tax laws.
On another note, I have a cabin up in the mountains of Eastern Oregon. Maybe I should start a farm.
The problem with that is that there are two reasons why tax laws are complicated: (1) to close loopholes, (2) to give people tax benefits for doing stuff we want to encourage. Regarding (1), business activity is complicated. If you apply simple laws to complex business activity, you're going to get metric tons of tax avoidance (as opposed to tax evasion), way more than we have today. Regarding (2), in many cases I'd favor getting rid of these special benefits, but it wouldn't be doing individual taxpayers any favors, it would do the opposite.
I think some of the complexity comes from efforts to *create* loopholes, though
Those efforts are what I'm referring to as (2) and to the extent they create complexity, it's the complexity involved in making sure you get every deduction available to you and don't leave any on the table, i.e. to avoid *overstating* income. While that's a form of complexity, it's different from (1), where you have to follow complex rules to avoid *understating* income, which would be illegal.
You are exactly right. It’s good to encourage people to buy backhoes. It creates jobs. But then someone figured out that you can buy a backhoe and save on taxes because of depreciation (I honestly don’t understand it) without ever using it. Loophole. To be closed and replaced by some other one eventually.
The column could just as well be subtitled, 'the rule of law for thee but not for me.' For the overwhelming number of Americans increased enforcement of tax laws will have no effect. The Government already knows what your income is and in some cases also major deductions (SALT and mortgage interest). Payroll income already includes tax withholding and most investment income such as stock dividends and capital gains from sales are reported to the Government. Even most private equity and hedge fund manager income is known.
Those objecting to increased IRS monitoring are likely to be the ones who have been skirting tax laws and reporting requirements. They should be made to pay their share of taxes just as those of us whose income is fully reported to the Government.
It seems like even the IRA is not spending enough on tax enforcement. We should be on the other side of the enforcement curve where increasing IRS funding doesn't increase revenue enough to pay for itself. Having a society where people follow tax laws is worth paying for.
TBH, I am disappointed they are going out of their way to *not* audit the 100K-400K small business owner class, many of whom openly brag, like Trump does, that taxes are for suckers.
Besides, it's not hard to find the tax cheats. Audit any company that won't process credit cards, and open a reporting line giving amnesty for "paid in cash" employees in return for ratting out their tax skirting employer.
As a fastidious taxpayer, I agree with the gist of this article. But Matt isn't sufficiently addressing the reason the bill has been criticized: our tax code allows the wealthy and well-counseled to evade taxes above board, while confusing the hell out of average citizens.
My wife is a freelancer. Many in her position cheat, but it's onerous to get it right even if you want to. We spent hours trying to figure out whether we could claim the corner of our bedroom dedicated to her desk as a home office space (the answer: maybe).
Of course if we could afford a place with a separate home office for her, we could clearly claim that. There are tax advantaged corporate structures that wouldn't be worth taking advantage of at her income level. And Congress can provide IRS enforcement funding but can't pass carried interest tax reform.
I want people to pay what they owe in taxes. But I can see why it feels like a slap in the face to juice enforcement without implementing tax reform, and I certainly worry this will hit middle class freelancers and small business owners hardest.
I'm also a freelancer (formerly full-time) and could not agree more. It's so frustrating, I never even try to claim anything that's remotely questionable.
I also used to work for a foreign government in DC. Everyone in these positions ("locally engaged") knows what the deal is, including that you have to pay the employer's share of FICA taxes (at least back in the day, salaries were structured to reflect this). But when Tim Geithner was appointed as Obama's Treasury Secretary, it came out during the hearings that, when he was at the World Bank (or one of the other IFIs, can't exactly recall) he didn't pay that portion, and had to go back and finally do so. He claimed ignorance.
This absolutely enraged me. l was a policy peon, and he was the freaking incoming Treasury Secretary. It was not plausible to me that he didn't know this, and even assuming he had an accountant, presumably he reviewed the forms before signing them. I've disliked him ever since.
This is my favorite kind of Matt post, something that I hadn't thought through, but when you think about it is clearly correct, but I wouldn't have been able to articulate so clearly on my own.
That said, I think you have to be careful with tax enforcement. I own a small business. It used to be located in Washington State. Instead of an income tax, Washington State has a "Business and occupation" tax, which taxes top-line business revenues at 3 different rates. My accountant had advised me that my business was retailing, and as a result I owned very few taxes (because I could deduct out of state sales). Several years in, a state collector called, yelled at me, and told I owed a large amount of taxes because it wasn't retailing. My accountant was of no help. I owed a lot, but not enough to talk to interest a tax lawyer in talking to me.
I paid the taxes. Then entirely on my own discovered that there is an obscure board in Washington that will issue written opinions on your tax category. I wrote them a long letter describing how our business worked (it wasn't unique or obscure). Many months later, it came back all "retailing". After many more months, I got all my money back. I also left washington state.
There are two things about this that matter. (1) The person who called me on the phone was clearly operating on some kind of quota scheme, and was clearly trying to meet her quota. She wasn't trying to get at the truth, she was trying to find a business which would not have enough resources to figure out it had been ripped off, and (2) During the course of many phone calls, she said to me "Well, see, what you did is innovation. In Washington, innovation costs extra." Those were her exact words. I remember them 20 years later. She was talking about _my_ innovation. She was right, I had innovated, but those words definitely left a bad taste in my mouth.
So, as clean as Matt's argument is, you have to be careful about how you motivate enforcers. You can end up alienating people who are 100% law abiding.
Some small points - the tax gap is remarkably stable, as described by my friend and former colleague, Jack Manhire, here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3218110
Second, the lawyer with the cattle was most likely getting his ag property tax exemption - there's a formula in each county for how many of any particular type of animal (or insect, bees can count) you need to pay the far lower agricultural property tax rate rather than the residential or commercial one. Back in the 1980s, EDS' HQ on the (then) outskirts of Dallas had cows on it for just that reason, according to a friend who worked there. Counting animals is an easy, objective test - makes tax enforcement easy. But it is also easy to "game". On the other hand, your lawyer acquaintance was adding to the beef supply. Tax avoidance or reasonable response to incentives?
Finally, tax compliance would go way up if the tax code were simplified. There's enormous play in many of the regulations and what is and isn't legal is often unclear (making lawyers and accountants lots of money). Then there are all the "special" bits of the code - the lengthy memoir "A Lawyer's Life: Deep in the Heart of Taxes" by Edwin S. Cohen, a very successful tax lawyer who worked for Treasury, etc. as well as in private practice, is a great source. One of his stories - recounted with pride - is how he got a special tax break for the University of Virginia (he was an alumnus) to fund renovations of frat houses by using his UVA connections on the Hill. With a tax code filled with such stuff, it is no surprise that many people think the game is rigged. It is rigged!
Finally, enforcement is an issue. We should enforce laws or repeal them. But the IRS has been used as a weapon at times and the IRS has shown remarkable incompetence at others. There is a case for some serious reform. Things may not be as bad as Republican talking points suggest, but they aren't rosy either. Good governance is really hard - as the late economist Rick Stroup said, it is the ultimate public good. Having a really complicated tax code stuffed with special interest provisions makes it harder.
One could argue the "cattleman" is a drag on the economy, using grazing land as a vacation home while hosting a nominal number of cows rather than that land being used more efficiently for cattle ranching by a large committed ranching operation. It's probably a net loss for the beef supply.
Well, you could. But then we'd have to get in to whether cattle are a good thing or not (the Dutch are in an uproar over proposed payments to slaughter cattle to lower methane emissions), etc. And, as someone with a ranch in the family, a "large committed ranching operation" isn't that different from people who lease their property to those operations to run cattle. The required density of cattle (or bees or sheep or whatever) to get the lower rate is set by the property tax authorities who usually understand the carrying capacity of the land around them and, in part, the lower rate reflects the lower level of services demanded by a largely rural property with cows on it compared to a bunch of ranchettes with transplanted urbanites who want the sheriff to come out more, use the schools, roads, etc.
I am not so sure it is a loss for beef supply, that a loss in beef supply would be evaluated as a good or bad thing by an omniscient social planner of the kind who lives in Econ 101 textbooks, or that adjusting property tax rates by a simple to implement and enforce rule of requiring X cattle per acre to get the lower rate isn't a good thing. In general, legislative bodies and academics (me!) put too much faith in the ability of the tax system to do really complicated things, are surprised when the smart lawyers and accountants find clever ways to use the complicated rules to save money, and discount too much the potential for outright rent seeking. Independent of the need (or lack of need) for more IRS agents, we need massive simplification of the tax code -- that would push many of those smart lawyers, lobbyists, etc. into productive activities too.
What's the moral difference between mischaracterizing tourism expenses vs. working while on a tourist visa?
Isn’t he working in the United States while physically located in Italy? I don’t believe you are required to stop working while on a country in tourism - you just aren’t allowed to take a job *there*.
Your understanding is incorrect. Google the many digital nomad discussions on it. You cannot engage in paid work in a country without a work permit. Doesn't matter where you are getting paid from.
I live in a Southeast Asian country with a lot of digital nomads and English teachers working illegally on tourist visas (they live here but teach online for kids in China because that pays more than local schools). It is fairly common to hear stories of one being caught, kicked out of the country, and blacklisted for visa violations.
China and Vietnam have significantly more restrictive visa classifications than the developed world, and even there China would never contemplate expelling someone because they spent a few hours a day catching up on work from their job in their home country while visiting China to see family or travel.
The US and (I believe) entire EU have a visa with a dual classification for business/pleasure that allows you to do basically whatever you want except take a paying job or run a business domiciled in the country you're visiting.
You are mistaken. You cannot work in the US on a tourist visa for a remote employer.
Just look at the State Department page on the B-2 visa.
https://travel.state.gov/content/travel/en/us-visas/tourism-visit/visitor.html
It doesn't say "oh, yeah, you can totally work as long as it isn't for a US company"
Here's a lawyer saying the same thing as me:
http://myattorneyusa.com/permissible-activities-while-on-b2-status
"As more and more people use the internet to work, we have noticed people inquiring as to whether doing remote work for a foreign company (with no connection to the United States) is permissible while on B2 status. More broadly, the question is whether any work for a foreign employer while in the United States on B2 status is permissible. For reasons that we will explain, we believe that the answer is categorically no."
There are tons and tons and tons of digital nomads blogs about this. Tons. I'm amazed that SlowBoring commenters seem to have no idea how this actually works.
For one, the US rarely issues B2 visas alone anymore, they're virtually all B1/B2. B1's permissible activities are, again, fuzzy enough to allow you to do basically whatever.
Secondly, I suspect we all understand that there is going to be a difference in enforcement as regards "I spent six months in the US working full-time for a foreign employer while digital-nomading" and "I was here for a family vacation and answered several work calls and wrote a dozen emails in those three weeks".
The actual precedents regarding the former are few and far between, from what I can find, in the US, but the latter doesn't seem to ever have entered anyone's minds to enforce, and I suspect that's because the courts would laugh their asses off at the implication that this constitutes travel for the purpose of employment.
Further, there seems to be more than a bit of a debate within the legal community as to whether there are any *immigration* implications to working remotely for a foreign employer while traveling in the US, vs. merely *tax* implications. The latter would imply that this is legally permissible so long as taxes are paid on income earned from your employer while working in the US.
Of course there will be a difference in enforcement. But look at the post I replied to. It claimed the only thing prevented is
"you just aren’t allowed to take a job *there*."
Are you really, actually disagreeing with me? That the only thing forbidden is taking a US based job?
The comment I replied to wasn't claiming you could check your work email. It was that literally everything is allowed as long as you don't take a local job.
Do you actually agree with that claim?
I do not think this is true. Think about academics. Americans go to European conferences all the time. And when they get to Europe they are working on their papers and presenting their findings. There is no way this is illegal.
Academic conferences are explicitly permitted in the Immigration and Nationality Act. And that would fall under a B-1 (business) visa, not a B-2 (tourist) visa. Though nowadays most people apply for a joint B-1/B-2 visa.
I doubt American academics are even applying for a visa. If I was invited to a conference in Italy, I would just go and present.
I also have friends in consulting where the culture is, if you are on a family vacation in Florence looking at Renaissance art and you get a work call, you are expected to answer it. You might even have to leave the museum, go back to your hotel, get on your computer, and do some work on whatever the problem is.
Are these people / firms all breaking the law? I have a hard time believing so
So you're claiming Matt was breaking Italian law by working on his blog (posting) while in Tuscany?
I'm pretty sure that's dependent on specific state and national laws. I know that my law firm doesn't allow people to formally work remotely from some states and countries because the firm doesn't want to deal with the tax implications.
That’s actually not legally clear. Same thing if you travel a lot and telework from different states.
You can work in the EU for 180 days (for a foreign domiciled employer) without owning any taxes. It would be like if you worked for Google in CA and they sent you to Frankfurt to work on a data center issue for two months. You just owe taxes to the US and CA. If you stay for 181 days that’s a problem both due to you overstaying your visa and for tax reasons.
It's a funny question - I genuinely snorted - but you don't need a visa to travel to Italy as long as it's for fewer than 90 days.
Usually those visa waivers are dependent on you not working, although I would imagine that the kind of work Matt was doing would be subject to some kind of exemption. But I'm not an expert in Italian immigration law.
Not working for a domestic employer. If you work for GE jet engines and they send you to Airbus in France for 2 months to work on an issue - that’s totally fine.
I'm going by the following: 'U.S. citizens may enter Italy for up to 90 days for tourist or business purposes without a visa.'
from: https://travel.state.gov/content/travel/en/international-travel/International-Travel-Country-Information-Pages/Italy.html