A note for Milan: the graph that you made for the post looks nice, but a couple of things about it are issues that lots of infographics get wrong and it's good to set good habits early, so I'll just comment:
-the horizontal axis is actually two different axes that you've put on one scale, which can lead to confusion (there's no way to get to 180 on the percent scale here. And the fact that 28% and 32 billion look to be at the same position on the horizontal axis conveys no information)
-the filled in section between makes it seem that we're looking at some kind of range, and in fact hides the information that the number on the left is just a scaling of the number on the right, which again is potentially confusing (in what sense is there a larger or range or bigger gap for the 99-100 percentile than for the others?)
Since the value and the % are scaled versions of the same number, one possible way to make this graph would be to have two axes (top and bottom or left and right) for the two different scales, and that way you would plot a single point for each percentile category, and it could be read off either axis
100% agree. Easy win, too: "Don't you think people should pay what they owe?"
You don't even have to get into the nuance of "the people cheating are the richies", but that is icing on the cake. You could even spin it as "hitting the fancy elites where it hurts".
I wish this article had brought up Tyler Cowen's Bloomberg article (1). Generally my sense is we've hired enough IRS agents to do a better job, whereas American law enforcement staff is woefully behind the numbers we see in Europe (2). Given what Cowen discusses, it seems the IRS is applying really outdated capital (COBOL!) and that's what is constraining productivity instead of labor numbers. Since the Democratic party got bored of spreading conspiracy theories about policing right after the last presidential election wrapped up, it would be good for some bipartisan talks about hiring more cops and preventing wandering between departments (3). By contrast to the IRS's inefficiencies, it does seem like we really need to hire more people to get better enforcement, walking the beat, etc.
But I'm open to being corrected, since I don't know that much about Europe's tax collection staff numbers. At any rate, I'm politely skeptical insufficient tax enforcement is the big reason Italy has the political economy problems we know about, though it certainly could make things worse. It seems like poorly designed pensions that punish youth employment are closer to the mark. Perhaps a good reason to talk about Medicare reform in a future article. Looking forward to it.
“ IRS is applying really outdated capital (COBOL!)”
“Companies involved in keeping COBOL-based systems working say that 95 percent of ATM transactions pass through COBOL programs, 80 percent of in-person transactions rely on them, and over 40 percent of banks still use COBOL as the foundation of their systems.”
In this case Tyler doesn’t know what he’s talking about.
“ Starting in 2012, the Commonwealth Bank of Australia spent a reported US$750 million and five years migrating its core software away from COBOL on a mainframe to a modern platform (it’s not clear how that effort ended).”
Here's Tyler: "And the GAO has criticized IRS cybersecurity software and called an essential technology upgrade “troubling” given that it’s not slated to finish until 2030. The agency also uses fax machines, an obsolete version of Windows, and the programming language of COBOL, which was designed in 1959 and standardized in 1968. While COBOL is still used in the private sector, such as in many banks, it is ill-suited for the kinds of innovations that have come to the American payments sector through Silicon Valley, starting with PayPal."
The private healthcare system also heavily relies on fax machines. His mistake is thinking that private large institutions are substantially different from large public institutions. They are not. They all limp along on their outdated platforms. Platforms that have the added benefit of working.
Returning to the Commonwealth Bank of Australia, they bought some sales guys pitch about “innovations that have come to the American payments sector through Silicon Valley” and spent $750 million and (possibly) have very little to show for it.
This is an odd piece. The lead paragraph says the great thing about more money for the IRS is it will increase revenues allowing Dems to do great things for the world. The concluding paragraph says it will enforce the rule of law and make more of us law-abiding citizens. I agree the latter is a worthy goal. I disagree raising money so Dems can do more great stuff is a winning argument, because half or more of the country thinks Dems are nuts, aren't doing great things for the world and cheating on taxes is a great way to thwart their idiocy.
I fled journalism for accounting due to career stability and ended up finishing an M.S in Accounting in at the height of the great recession. My best option was a gig as a state tax auditor, and it was honestly the most interesting job I've ever had. I left because the salary ceiling was pretty low - though they made up for it with great benefits/pension, a shorter work week, and generous travel expenses (decent hotels, good per diem, and profitable mileage reimbursement).
I'm sure the IRS is super frustrating, but they pay OK. Honestly wouldn't mind going back to this line of work. Getting to see how businesses work from a P&L standpoint was fascinating.
I should point out that I ran into as much confusion/ambiguity as fraud or negligence. Many of my colleagues, who frequently weren't the cream of the crop, tended to try to make things black or white. More than once I took a confusing taxability issue to multiple managers and got conflicting answers.
How deep do they go? Take my water heater example - are they just checking for the receipt? Or are they checking the serial numbers on the water heater at the warehouse to confirm he’s not charging personal expenses to the business?
But promoting tax cheating is a good strategy for Republicans. a) Contributing to the idea that taxes are unfair helps set a tone in which any tax increases are bad, any tax decrease is good, which favors upward income redistribution. b) Promoting tax cheating is a way to do upward income redistribution without being getting caught as doing so as they sort of were with the "Tax Cuts for the Rich and Deficits Act of 2017."
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.
This post totally breezes by a very important philosophical consideration - do you have a moral obligation to pay taxes?
If the answer is anything other than yes, then it is NOT the case that "the government collecting the tax revenue it’s owed is unambiguously good" and much of the rest of the post falls apart. As a student of philosophy I'd expect Matt to recognize that the morality of taxation is a matter of some dispute, not just among the populace, but among academic moral philosophers as well.
Yes, in general, you have a moral obligation to pay the taxes you owe.
If you want to do civil disobedience, you do it publicly and openly (not keeping two sets of books in hopes you won't get caught or pretending to have business expenses you don't have).
"If you want to do civil disobedience, you do it publicly and openly"
This seems clearly wrong to me. If you want to smoke a joint in a prohibition state, you don't do it while parading in front of the cops. There is a difference between wanting to enjoy something unjustly prohibited to you and wanting to make a public statement.
I think perhaps the final point Matt makes is the most important one: increased IRS enforcement as a way to rebuild overall trust in society. Not that people like the IRS and not that they don't fear having a pointless yet irritating audit of their finances. But beyond that, people hate seeing others -- especially the super rich -- getting away with not paying their fair share and even bragging about that (a la Leona Helmsley "only the little people pay taxes"). Seeing those assholes get their comeuppance would be welcomed by most of society and could, over time, lead to a consensus for lower tax rates, a la the 1986 tax reform.
The fact that the Republicans are so against this obvious form of trust building shows yet again how thin the veneer of their supposed "patriotism" is. They really do hate America, I think.
Over the years I’ve seen more than a few small business owners pad their expenses. But in fairness to them, allowed/not falls so often in a gray area. More IRS auditors will catch—probably—the more egregious cases. Matt’s own trip to Italy, on the other hand, is a good example of the frustrations for a small business owner or independent contractor trying to be compliant. Legally, he COULD mine that trip for a small deduction—and the IRS is specific about how. What percentage of what day was a contribution to his work product? Divide hotel cost by that number. Etc. Compliance is hard because the tax code is complicated. Try figuring out the foreign tax credit on your own. Be prepared for phantom income (money you never get but pay taxes on) if you are an owner rather than an employee. On the other hand, be pleasantly surprised by the agricultural tax credits if you move to country property and suddenly own a meadow (or, as in Matt’s example, a cattle ranch). A final observation: Matt’s musings conflate two different tax issues in the USA—fudging on taxes by small business owners and the unfairness that very wealthy people often pay little tax, proportionally. The issue here is earned income (upon which most people rely) and unearned income (source of funds for the rich). Earned income is taxed much higher than unearned—and—if you are an employee rather than a business owner—you have precious few ways to avoid tax owed. Therefore, for example, the Trump tax cuts actually resulted in much higher taxes for upper middle class California wage earners because the new law caps state taxes (property and income combined) at $10,000 as a deduction. If you are a Silicon Valley engineer making $300,000 a year and living in a 3-million-dollar Los Gatos home—yikes!—you just now owe $70,000 a year more in federal taxes, thanks to Trump.
"If you are a Silicon Valley engineer making $300,000 a year and living in a 3-million-dollar Los Gatos home—yikes!—you just now owe $70,000 a year more in federal taxes, thanks to Trump."
Unless you have other sources of income you're very house poor as well.
While more enforcement is obviously good and some Republicans are operating in bad faith on this, there are some valid concerns about the lack of trust in the IRS. Agents spent 9 years inappropriately targeting, delaying approval of, and harassing non-profit orgs solely based on their name, and when higher ups found out (7 years in no less) they didn't do anything about it until Congress got involved. The IRS says it is going to higher 80000+ new agents over the next decade. What does the hiring process look like (honest question)? Are there screens for people who power-trip or are vindictive? What are the internal cultural standards about applying enforcement and knowing the law? If we are going to treat the IRS like police, as MY does, and we also know that there are rotten police departments, then we should treat the IRS the same.
I am a paralegal in a public defenders office; I'll just point out that a lot of other types of fraud (wire, bank, insurance) are committed concurrently with tax fraud. Better tax enforcement should also yield broader, increased fraud enforcement.
It seems like you're arguing that the choice is "increase tax enforcement or be like Italy". However the graph you're working off of would seem to indicate that our tax gap as a percentage of GDP is much closer to your Ireland or Netherlands ideal than Italy or Greece. It would be more accurate to say "increase tax enforcement and make a marginal reduction of the tax gap as a share of GDP, or don't increase enforcement and still stay in the desirable end of the graph"
"a quarter of the $80 billion for the IRS is going to customer service rather than enforcement functions"
What does that mean, specifically? What outcomes should we expect to accompany the increase in a line item for "customer service"?
I really wish we would stop describing bills as "$X billion for this and $Y billion for that", both in this case and with things like infrastructure. It's easy to say you spent money on something, harder to prove you spent it well and achieved a goal stated prior to the spending.
"What does that mean, specifically? What outcomes should we expect to accompany the increase in a line item for "customer service"?"
I've not been able to reach the IRS by phone, especially during tax season. You have to communicate with them by letters. They need a lot more capacity.
A note for Milan: the graph that you made for the post looks nice, but a couple of things about it are issues that lots of infographics get wrong and it's good to set good habits early, so I'll just comment:
-the horizontal axis is actually two different axes that you've put on one scale, which can lead to confusion (there's no way to get to 180 on the percent scale here. And the fact that 28% and 32 billion look to be at the same position on the horizontal axis conveys no information)
-the filled in section between makes it seem that we're looking at some kind of range, and in fact hides the information that the number on the left is just a scaling of the number on the right, which again is potentially confusing (in what sense is there a larger or range or bigger gap for the 99-100 percentile than for the others?)
Since the value and the % are scaled versions of the same number, one possible way to make this graph would be to have two axes (top and bottom or left and right) for the two different scales, and that way you would plot a single point for each percentile category, and it could be read off either axis
100% agree. Easy win, too: "Don't you think people should pay what they owe?"
You don't even have to get into the nuance of "the people cheating are the richies", but that is icing on the cake. You could even spin it as "hitting the fancy elites where it hurts".
"small, closely held businesses with family-centric management"
Sounds like a certain real-estate company run by a dad and his kids.
I wish this article had brought up Tyler Cowen's Bloomberg article (1). Generally my sense is we've hired enough IRS agents to do a better job, whereas American law enforcement staff is woefully behind the numbers we see in Europe (2). Given what Cowen discusses, it seems the IRS is applying really outdated capital (COBOL!) and that's what is constraining productivity instead of labor numbers. Since the Democratic party got bored of spreading conspiracy theories about policing right after the last presidential election wrapped up, it would be good for some bipartisan talks about hiring more cops and preventing wandering between departments (3). By contrast to the IRS's inefficiencies, it does seem like we really need to hire more people to get better enforcement, walking the beat, etc.
But I'm open to being corrected, since I don't know that much about Europe's tax collection staff numbers. At any rate, I'm politely skeptical insufficient tax enforcement is the big reason Italy has the political economy problems we know about, though it certainly could make things worse. It seems like poorly designed pensions that punish youth employment are closer to the mark. Perhaps a good reason to talk about Medicare reform in a future article. Looking forward to it.
(1) https://www.bloomberg.com/opinion/articles/2022-08-17/the-irs-has-problems-that-80-billion-won-t-solve
(2) https://direct.mit.edu/ajle/article/doi/10.1162/ajle_a_00030/112647
(3) https://www.manhattan-institute.org/schulz-wandering-cops
“ IRS is applying really outdated capital (COBOL!)”
“Companies involved in keeping COBOL-based systems working say that 95 percent of ATM transactions pass through COBOL programs, 80 percent of in-person transactions rely on them, and over 40 percent of banks still use COBOL as the foundation of their systems.”
In this case Tyler doesn’t know what he’s talking about.
https://increment.com/programming-languages/cobol-all-the-way-down/
And I laughed out loud at this quote:
“ Starting in 2012, the Commonwealth Bank of Australia spent a reported US$750 million and five years migrating its core software away from COBOL on a mainframe to a modern platform (it’s not clear how that effort ended).”
I should've been more precise, thank you for correcting, and I should note Cowen himself situates it as inappropriate for the IRS, rather than obsolete. Outdated came to my mind when I recalled reading about the technical constraints to changing unemployment payments in 2020. (https://www.theverge.com/2020/4/14/21219561/coronavirus-pandemic-unemployment-systems-cobol-legacy-software-infrastructure)
Here's Tyler: "And the GAO has criticized IRS cybersecurity software and called an essential technology upgrade “troubling” given that it’s not slated to finish until 2030. The agency also uses fax machines, an obsolete version of Windows, and the programming language of COBOL, which was designed in 1959 and standardized in 1968. While COBOL is still used in the private sector, such as in many banks, it is ill-suited for the kinds of innovations that have come to the American payments sector through Silicon Valley, starting with PayPal."
The private healthcare system also heavily relies on fax machines. His mistake is thinking that private large institutions are substantially different from large public institutions. They are not. They all limp along on their outdated platforms. Platforms that have the added benefit of working.
Returning to the Commonwealth Bank of Australia, they bought some sales guys pitch about “innovations that have come to the American payments sector through Silicon Valley” and spent $750 million and (possibly) have very little to show for it.
This is an odd piece. The lead paragraph says the great thing about more money for the IRS is it will increase revenues allowing Dems to do great things for the world. The concluding paragraph says it will enforce the rule of law and make more of us law-abiding citizens. I agree the latter is a worthy goal. I disagree raising money so Dems can do more great stuff is a winning argument, because half or more of the country thinks Dems are nuts, aren't doing great things for the world and cheating on taxes is a great way to thwart their idiocy.
I fled journalism for accounting due to career stability and ended up finishing an M.S in Accounting in at the height of the great recession. My best option was a gig as a state tax auditor, and it was honestly the most interesting job I've ever had. I left because the salary ceiling was pretty low - though they made up for it with great benefits/pension, a shorter work week, and generous travel expenses (decent hotels, good per diem, and profitable mileage reimbursement).
I'm sure the IRS is super frustrating, but they pay OK. Honestly wouldn't mind going back to this line of work. Getting to see how businesses work from a P&L standpoint was fascinating.
I should point out that I ran into as much confusion/ambiguity as fraud or negligence. Many of my colleagues, who frequently weren't the cream of the crop, tended to try to make things black or white. More than once I took a confusing taxability issue to multiple managers and got conflicting answers.
Makes me want to read The Pale King again. Highly entertaining novel, a surprising amount of it revolving around tax code.
How deep do they go? Take my water heater example - are they just checking for the receipt? Or are they checking the serial numbers on the water heater at the warehouse to confirm he’s not charging personal expenses to the business?
But promoting tax cheating is a good strategy for Republicans. a) Contributing to the idea that taxes are unfair helps set a tone in which any tax increases are bad, any tax decrease is good, which favors upward income redistribution. b) Promoting tax cheating is a way to do upward income redistribution without being getting caught as doing so as they sort of were with the "Tax Cuts for the Rich and Deficits Act of 2017."
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.
This post totally breezes by a very important philosophical consideration - do you have a moral obligation to pay taxes?
If the answer is anything other than yes, then it is NOT the case that "the government collecting the tax revenue it’s owed is unambiguously good" and much of the rest of the post falls apart. As a student of philosophy I'd expect Matt to recognize that the morality of taxation is a matter of some dispute, not just among the populace, but among academic moral philosophers as well.
Yes, in general, you have a moral obligation to pay the taxes you owe.
If you want to do civil disobedience, you do it publicly and openly (not keeping two sets of books in hopes you won't get caught or pretending to have business expenses you don't have).
"If you want to do civil disobedience, you do it publicly and openly"
This seems clearly wrong to me. If you want to smoke a joint in a prohibition state, you don't do it while parading in front of the cops. There is a difference between wanting to enjoy something unjustly prohibited to you and wanting to make a public statement.
I think perhaps the final point Matt makes is the most important one: increased IRS enforcement as a way to rebuild overall trust in society. Not that people like the IRS and not that they don't fear having a pointless yet irritating audit of their finances. But beyond that, people hate seeing others -- especially the super rich -- getting away with not paying their fair share and even bragging about that (a la Leona Helmsley "only the little people pay taxes"). Seeing those assholes get their comeuppance would be welcomed by most of society and could, over time, lead to a consensus for lower tax rates, a la the 1986 tax reform.
The fact that the Republicans are so against this obvious form of trust building shows yet again how thin the veneer of their supposed "patriotism" is. They really do hate America, I think.
Over the years I’ve seen more than a few small business owners pad their expenses. But in fairness to them, allowed/not falls so often in a gray area. More IRS auditors will catch—probably—the more egregious cases. Matt’s own trip to Italy, on the other hand, is a good example of the frustrations for a small business owner or independent contractor trying to be compliant. Legally, he COULD mine that trip for a small deduction—and the IRS is specific about how. What percentage of what day was a contribution to his work product? Divide hotel cost by that number. Etc. Compliance is hard because the tax code is complicated. Try figuring out the foreign tax credit on your own. Be prepared for phantom income (money you never get but pay taxes on) if you are an owner rather than an employee. On the other hand, be pleasantly surprised by the agricultural tax credits if you move to country property and suddenly own a meadow (or, as in Matt’s example, a cattle ranch). A final observation: Matt’s musings conflate two different tax issues in the USA—fudging on taxes by small business owners and the unfairness that very wealthy people often pay little tax, proportionally. The issue here is earned income (upon which most people rely) and unearned income (source of funds for the rich). Earned income is taxed much higher than unearned—and—if you are an employee rather than a business owner—you have precious few ways to avoid tax owed. Therefore, for example, the Trump tax cuts actually resulted in much higher taxes for upper middle class California wage earners because the new law caps state taxes (property and income combined) at $10,000 as a deduction. If you are a Silicon Valley engineer making $300,000 a year and living in a 3-million-dollar Los Gatos home—yikes!—you just now owe $70,000 a year more in federal taxes, thanks to Trump.
"If you are a Silicon Valley engineer making $300,000 a year and living in a 3-million-dollar Los Gatos home—yikes!—you just now owe $70,000 a year more in federal taxes, thanks to Trump."
Unless you have other sources of income you're very house poor as well.
While more enforcement is obviously good and some Republicans are operating in bad faith on this, there are some valid concerns about the lack of trust in the IRS. Agents spent 9 years inappropriately targeting, delaying approval of, and harassing non-profit orgs solely based on their name, and when higher ups found out (7 years in no less) they didn't do anything about it until Congress got involved. The IRS says it is going to higher 80000+ new agents over the next decade. What does the hiring process look like (honest question)? Are there screens for people who power-trip or are vindictive? What are the internal cultural standards about applying enforcement and knowing the law? If we are going to treat the IRS like police, as MY does, and we also know that there are rotten police departments, then we should treat the IRS the same.
That graph does not look like it was made by a 19-year-old intern. It’s very good content and design. Cheers to Milan.
I am a paralegal in a public defenders office; I'll just point out that a lot of other types of fraud (wire, bank, insurance) are committed concurrently with tax fraud. Better tax enforcement should also yield broader, increased fraud enforcement.
It seems like you're arguing that the choice is "increase tax enforcement or be like Italy". However the graph you're working off of would seem to indicate that our tax gap as a percentage of GDP is much closer to your Ireland or Netherlands ideal than Italy or Greece. It would be more accurate to say "increase tax enforcement and make a marginal reduction of the tax gap as a share of GDP, or don't increase enforcement and still stay in the desirable end of the graph"
"a quarter of the $80 billion for the IRS is going to customer service rather than enforcement functions"
What does that mean, specifically? What outcomes should we expect to accompany the increase in a line item for "customer service"?
I really wish we would stop describing bills as "$X billion for this and $Y billion for that", both in this case and with things like infrastructure. It's easy to say you spent money on something, harder to prove you spent it well and achieved a goal stated prior to the spending.
"What does that mean, specifically? What outcomes should we expect to accompany the increase in a line item for "customer service"?"
I've not been able to reach the IRS by phone, especially during tax season. You have to communicate with them by letters. They need a lot more capacity.