Small business cheating is straight forward enough to get away with, but working at a Big 4 I’ve seen several audits just… stop since Trump took over. No further communication, the auditor is either busy or fired.
Of course, interaction with the IRS isn’t limited to audits. Sometimes you need something from the IRS for whatever reason. A foreign client made an investment in some US securities and ended up getting over withheld upon. As a result they had to file a Form 1120-F and claim the refund. A month before Trump took office we got a notice that they couldn’t verify the withholding. By the time we had sent in a response, chaos at the IRS had made it so that it’s going to be months before they even read it. Now the client has $2.5 million stuck at the IRS and a lack of staff is making it very hard to get back. This kind of administrative inconvenience makes the US less attractive to invest.
There is going to be a huge backlog of crime and tax fraud after this administration. We are going to need to rewrite laws to expand the statute of limitations.
Let alone the transparently obvious insider trading by politically connected allies of the administration. Once SCOTUS rules the President can hire and fire anyone they want, our guy will at least have the opportunity to put in loyal enforcers at the SEC and IRS to pursue this. I'm not saying we should make up charges, but I am saying in a world of limited enforcement resources, there's no reason that we shouldn't prioritize people associated with the Trump administration over apolitical tax cheats, who we may or may not have the ability to get around to eventually. Creating strong disincentives to use political connections in order to make money is a real and legitimate policy priority, not just retribution. Elections have consequences, or so I'm told.
Defunding the IRS tax police is dumb and bad and the Trump administration is wrong to do so.
But I want to add some context to the difference between the IRS and the police. It comes down to burden of proof.
As Matt clearly demonstrates, as a person's tax situation becomes more complicated you realize there is no "right" answer. Rumsfeld's letter is both funny and true. One's tax owed becomes a question of judgment, estimates and approximations. This is even more true as businesses move from small to medium to large.
The difference between the police and the IRS, though, is that in an audit, the burden of proof is on the taxpayer, not the IRS. So if the IRS says "we disagree with your judgements and think you owe XXX", then the taxpayer must decide to either pay the tax (and fine plus interest) or hire lawyers and challenge the ruling in Tax Court. You are guilty until you prove your innocence.
Add in the fact that IRS auditors are not the smartest, most hard-working and motivated group of tax accountants, so their judgements are often incorrect. The smartest ones work for tax advisory firms or big companies. It is a situation that is ripe for even the law-abiding taxpayer to feel stressed, defensive and to believe the audit itself is the "problem".
This doesn't justify anything the Trump administration is doing, though. I do agree that a consumption-based tax would be much better, more efficient and more fair (as Thomas Hutcheson so often notes). But we have the system we have and it is irresponsible to just walk away from the duty to faithfully execute the laws (tax laws, in this case) because of the audit process.
I don’t really see how this is different from the regular justice system. If the police / district attorney say “we think you have committed a crime” then you must decide to either plead guilty, or hire lawyers and challenge their position in court.
I take your point that there may be a different standard of judgment (reasonable doubt vs whatever the IRS uses), but the setup is fundamentally the same.
It is very different. The DA must show proof of a crime to a judge to even get you to court via an indictment. The IRS doesn't need to do anything other than assert its position to start enforcement actions.
The formal difference between IUPG and GUPI is huge and important and at the foundation of our Anglo legal system.
In practice, though, how is a defendant likely to fare if they hire no lawyer, prepare no defense, and simply repeat to the court, "I am innocent until proven guilty"? My guess is that it will not go very well for them. To the extent that one can no longer count on one's unfortified innocence to prevail, Andrew S's concern about hiring lawyers etc. is justified.
"The DA must show proof of a crime to a judge...." I assume that by "proof" you meant no more than "probable cause"?
Yes, proof of probable cause. Which is then viewed by a third party — the judge or the grand jury. Not the DA alone. The IRS has no third party review before they impose their own conclusion.
It is famously easy for prosecutors to get a grand jury to proceed to indictment. But I agree it does pose a basic guardrail to the system. It might be worth considering some sort of independent tax magistrates who need to verify that there exists some non-zero quantity of evidence, but I doubt this would have the effect you're looking for. The IRS may be wrong in its conclusions, just like prosecutors often are, but I don't think they typically go around making these judgements on the basis of literally no evidence, which is what such a system would prevent.
I was a juror in a case that pretty much went like that (though there was a public defender).
Guy was in a car accident that killed a passenger, was charged with vehicular manslaughter. Cops arrived after the crash and he blew clean on a breathalyzer and subsequent drug tests. Cops said "we didn't see him but obviously he was driving recklessly" and he kind of just said "yeah I made a mistake, but cars are dangerous and a reasonable person can make a fatal mistake without being reckless. Prove I did otherwise." They did not really even try and so we acquitted.
"They did not really even try and so we acquitted."
Interesting. Did you acquit because you believed his story (i.e. that he was unlucky but not reckless) or because you thought that even if he was dissembling the prosecution failed to make its case?
The jury was a little split on how much we believed him, but unanimous in that we weren't close to reaching "beyond reasonable doubt" territory.
On the "did not try" front - a big part of it was that there was a police dashcam video of them arriving on scene, pulling the guy out of the car and arresting him. In the footage there was a small crowd of people around when they arrived. The public defender asked "did you speak to anyone present to find out what happened" and the officer on the stand said "no, we thought it was pretty obvious what had happened."
That line stuck out a lot in the jury deliberations. I really would not want to be in a scenario where I'm accused of something while there are witnesses around and no one stops to at least get their story.
Because of the structure of threads here, it's almost impossible for anyone to tell what or whom you are agreeing with, unless you specify the content with which you agree, or at least the poster with whom you agree.
Otherwise, all we can tell is, "he agrees with some previous view, or maybe the opposite view."
That's why I tend to begin my comments with a quotation of some relevant bit of the post that I am reacting to and engaging with. It allows later readers to identify the players and the positions.
Sorry - I agree with this (though not with the last paragraph [omitted] - I agree with a consumption tax taking over for some of the income tax burden, but not all of it, a lack of an income tax on the wealthy and affluent is incredibly regressive)
By John from FL:
Defunding the IRS tax police is dumb and bad and the Trump administration is wrong to do so.
But I want to add some context to the difference between the IRS and the police. It comes down to burden of proof.
As Matt clearly demonstrates, as a person's tax situation becomes more complicated you realize there is no "right" answer. Rumsfeld's letter is both funny and true. One's tax owed becomes a question of judgment, estimates and approximations. This is even more true as businesses move from small to medium to large.
The difference between the police and the IRS, though, is that in an audit, the burden of proof is on the taxpayer, not the IRS. So if the IRS says "we disagree with your judgements and think you owe XXX", then the taxpayer must decide to either pay the tax (and fine plus interest) or hire lawyers and challenge the ruling in Tax Court. You are guilty until you prove your innocence.
Add in the fact that IRS auditors are not the smartest, most hard-working and motivated group of tax accountants, so their judgements are often incorrect. The smartest ones work for tax advisory firms or big companies. It is a situation that is ripe for even the law-abiding taxpayer to feel stressed, defensive and to believe the audit itself is the "problem"."
They don’t need to show proof of a crime. They just need to show proof enough for the judge to proceed. I’d imagine this is pretty easy for the IRS to accomplish given the nature of audits.
“Add in the fact that IRS auditors are not the smartest, most hard-working and motivated group of tax accountants”
This statement made me shockingly angry. I hate this unpatriotic sentiment on the right that you’re “smart” to minimize your tax burden through ever more esoteric schemes that might be letter of the law legal but clearly violate the spirit of the law as if it’s some arms race vs. the IRS. How embarrassing. I was interested last year in just how much I was “over-paying” by doing my own taxes so I met with two accountants. The answer was ~ $80k. I passed. This is the town wine analogy playing out right in front of us and all our greedy fellow Americans will be drinking water for our celebration. It’s sick.
My interactions with the IRS have not been near that adversarial. Specifically, they would tell you what form you need to submit to support a claim. Usually even offered the common mistakes they saw in situations like ours, to help in supporting our case.
If you didn't have it, then I guess you could get to where you are and fighting to prove something?
Yes, exactly. I have been (incorrectly) accused by both the IRS and a state government of owing more money than I did. It was a huge hassle, (almost) all due to their mistakes, it cost me a bunch of my time, and was of no benefit to society.
Here is a rough outline of what happened:
- My wife and I filed separately. I took the mortgage deduction, she did not.
- There was some money moved from one IRA to another IRA.
- There was some money moved from an after tax 401k to an IRA. There was a small amount of profit we owed taxes on (like a $150 profit) that we neglected to pay (this was the one mistake we made).
- After filing the return, the IRS modified my wifes return to give her the mortgage deduction, which she was not qualified to get, because I got it. The IRS auto-deposited the amount into our bank account.
- The IRS then accused her of filing a wrong return. The alleged errors (which were not clearly explained--we had to call and ask about them) included taking the mortgage deduction (which she didn't do), not paying taxes on the IRA rollover (which were not owed), not paying taxes on the $150 401k profit (which were due!), taking unqualified 529 distributions, and maybe one other thing. The IRS said she owed something like $12,000.
- I had to go over the letter sent by the IRS in some detail to figure out what they were accusing my wife of, gather documenation showing IRA transfers, legitimate 529 expenses, etc. The letter came like two years after the return was filed, so it was even more of a pain to find everything.
- The IRS eventually agreed the only thing we owed was the mortgage deduction (which we filed correctly, and they changed!) and like $40 on the 401k profit.
They're not exactly running a tight ship over there. And this wasn't even technically an audit--just a routine "correction" of a return. I also have a small business with a small number of ordinary expenses I deduct, like buying a computer. If I had to prove all of those deductions, or hire an accountant to work with me on proving all of that, it would have cost me probably $20,000 in time and fees.
So I'm not mourning the excessive reach of the IRS being pulled back.
Your last sentence is uncompelling. It’s certainly true that the mistake was of no benefit to society. On the other hand, as I think Matt compellingly argues, aggressive enforcement *is* of benefit for society. And one consequence of enforcing the laws is that sometimes the state will make mistakes. We should have every sympathy for someone who is arrested for a crime they didn’t commit, and make restitution for harm done to them, but if someone said “I’m not sorry to see the police defunded after how they wrongly arrested me” I could understand their personal viewpoint but couldn’t agree as a matter of policy. A police force that never arrested the wrong person would almost certainly be making far too few arrests.
"Aggressive enforcement" looks a lot more like what happened to me, and a lot less like what Matt envisions.
I remember Matt proclaiming how the $80 billion Biden got to spend on IRS was going to pay for itself many times over. How did that turn out? Last I saw, Matt was trumpeting an additional...$3 billion in revenue.
Wow, only $3 billion! What a disaster. Clearly both Biden and Matt were wrong, and (counterintuitively!) allocating additional funds for audit enforcement didn't increase revenue at all.
Or, alternatively: the numbers you're quoting are just totally made up and the actual sums are wildly different. Hey, maybe there are even some online resources we could use to put real numbers to this question. I tried that, and here's what I found in the first results [1]:
* The total new budget allocated was $60 billion, but this was spread over 10 years (that's $6bn/year, just to be helpful.)
* In 2024 alone, audits of filed returns netted an additional $25 billion in revenue vs the same total in 2023. (ETA: this should read 2021.)
These actually seem like pretty decent early results. Now obviously a huge surge in revenue during one year does not mean this would have been sustainable over the full 10-year period! Unfortunately we'll never know, since Trump and DOGE have now wrecked the IRS.
"* In 2024 alone, audits of filed returns netted an additional $25 billion in revenue vs the same total in 2023."
Nope, that's not correct. The increase of $25 billion (from $75 billion to $100 billion) wasn't year over year, it was since the IRS got the extra money--i.e., since 2021. Due to inflation, total tax receipts went up 25%, from ~$4 trillion to ~$5 trillion over the same time frame. The enforcement revenue went up a slightly higher percentage, but I don't see anything in the cited IRS report that credits extra enforcement. With covid, inflation, etc., I would need a lot more to believe that the extra enforcement is what made the difference.
"The number the IRS itself credits to extra enforcement wasn't $3 billion. It was $1.3 billion."
Read the headline on the article you quote: "Treasury recovers $1.3 billion in unpaid taxes from high-wealth tax dodgers"
This only refers to a subset of enforcement, not all enforcement. Specifically:
"Agency officials said since the program’s launch, almost 80% of the 1,600 millionaires targeted by the IRS for failing to pay a delinquent tax debt have now made a payment, leading to over $1.1 billion recovered. And in the first six months of a new February 2024 initiative, the IRS collected $172 million from 21,000 wealthy taxpayers who have not filed tax returns since 2017."
If you're going to claim that enforcement didn't work, and then you think you can buttress that argument by pointing to a subset of enforcement efforts, then you're not arguing in good faith.
Matt also said you can't just look at the actual amount they recover, you need to look at the increase in compliance.
That will diminish faster than the recovered amount, of course. If you have 99% compliance, then it's very hard to recover anything beyond the direct enforcement, because you're not going to push 99% up more than that.
That means it can be true that at the margin for Biden, additional IRS enforcement funding wasn't worth it* (because it didn't increase compliance(already high) + direct enforcement enough), but keeping the current (vs. a DOGE cut) is worth it, because the savings on enforcement are outweighed by a compliance loss.
*I haven't looked at percentage increases in tax receipts overall, so I don't know how much compliance went up with Biden, but I wouldn't be surprised if you are correct about the end result being < enforcement, just that I think the end result is likely higher than the $3 billion direct result.
"I haven't looked at percentage increases in tax receipts overall, so I don't know how much compliance went up with Biden"
I find it infuriating to read the comments section on a policy wonk blog where nobody seems interested in actually measuring the effects of any policy. Some random commenter asserts that enforcement didn't work, and everyone just accepts their word for it? Why not just Google the question?
TLDR, the IRS was allocated $6bn/year for additional enforcement. In 2024 they claim an increase of $25bn in audit revenue vs. 2023 (ETA: 2021). That may or may not have been sustainable, but it sure seems like the kind of fact you'd want to know about prior to having a policy discussion premised on random bad-faith made-up numbers.
Sorry, I had issues with the numbers even if they were accurate and didn't take the time to look more.(I at least make sure to say that I hadn't double-checked the numbers)
It looks like both your numbers and Kevin's have an error, but maybe I'm misunderstanding.
1) The act was over 10 years, so regardless you should (as you do, and Kevin does not) compare year-year, not 10 year:1 year (Don't complain about the enforcement returns on a fraction of the total years vs the total cost after 10)
2) In 2022, IRA got $80 billion for IRS/10 years. In 2024 that was reduced to $60 billion. I _interpret_ this as $8 billion for the first two years, $6 billion for each additional year. But I'm not sure where the timing comes in.
3) Assuming the article is correct, Kevin(responding to you) is correct that the $25bn increase is not over one year, but, I think he's also incorrect, in that the article says:
"This represented an additional $25 billion in revenue from audits when compared with the year prior to the agency’s budget boost."
That sounds like $25 billion comparing to the returns gathered in 2022. (Since the budget boost happened in August 2022, tax returns collected in April were already in). So that sounds like neither 1 year nor 3 years but 2 years.
Inflation over that time was... 1.08 * 1.04 = 12.3%? That would bump audits from $75 billion to $84 billion with inflation, which means they got about $16 billion extra in audits over what they would have gotten.
Since their budget in 2024 was _still_ $8 billion/year, that sounds like a 2:1 direct enforcement return.
_In addition_ to whatever revenue they collect from higher compliance.
If you're going to try to be pedantic, you can at least be correct. The $25bn increase (from $75bn, or about ~33%) was not since 2024, it was since 2021. So roughly in line with inflation.
The IRS should probably have a little less power and a little more oversight, but also both more workers and better workers, both of which they get with increased salary.
“I'm not mourning the excessive reach of the IRS being pulled back.”
That seems backwards. No one is pulling back the reach of the IRS. They are just asking fewer employees to do the same work, so more mistakes will be made and processing and resolving them will be slower. That seems like it would make more situations like yours, so you probably should mourn it.
Though it *feels* nice when someone who harmed you gets a pay cut, even if it leads to more harm rather than less.
Even Matt is using the framing of "more IRS agents means more tax revenue" which people hear the same way they hear "more traffic cops means more traffic ticket revenue". It's 100% understandable why people don't want the more cops in either scenario.
Change the framing. "More IRS agents means more accurate tax revenue."
I don't like this comparison. Speeding, on aggregate, makes driving less safe for everyone, but an individual instance of speeding is likely not causing harm. Every single instance of tax avoidance is stealing from the rest of us in a concrete way.
That's why it's important to sell traffic cops (or speed cameras) as "this will make the roads safer" and not "this will raise revenue."
Of course, you need to make sure the design follows through on that promise or else the voters will figure it out. (And every single speed camera proposal I've seen has been built for revenue.)
I mean, things like this happen. A witness misidentifies you in a crime, a lazy prosecutor is uninterested in your claims (which seem indistinguishable at first glance from the claims a guilty person would make) and suddenly you have to spend a bunch of resources retaining a defense attorney, making filings, etc., and the whole process is even more terrifying than an inaccurate IRS audit. But it's not a reason to pull back on enforcing the law (indeed, this error is fundamental to progressive soft-on-crime delusion!) It may be a reason to introduce procedural safeguards, or provide compensation, or some other corrective mechanism, but there's never a situation in which 'reduce the government's enforcement capacity' is a workable solution unless you literally believe the government is an illegitimate, net-bad entity and a world in which it ceases to function is a good world.
"there's never a situation in which 'reduce the government's enforcement capacity' is a workable solution"
This doesn't seem right. Imagine slavery still existed and you didn't have the power to abolish it, but you did have the power to defund the Federal Bureau of Runaway Slave Catchers. I say you defund. Not the ideal solution, but it is a way to make the situation better.
Also, payroll withholding is a pain. I’ve made a good faith effort to comply with all that, but I didn’t want to hire a cpa to account for a single employee. Now I owe penalties, nothing horrible, but the accounting burden of hiring one or two employees is a material fraction of the productivity you get out of them.
I...don't think it's true that most small businesses interact with an accountant that often, though that's just going off my experiences rather than any sort of real data. I do know many small business owners and to the best of my knowledge they all dump a pile of receipts (figuratively) on the accountant once a year or even do their own taxes (gasp).
My general working assumption is that until you are in the position to have 5 or more employees it’s more cost-effective to have none and outsource all functions that would otherwise require them.
This is less anomolous than you imagine. For a normal person, their most common interaction with the law is traffic court. The police do not present any evidence you were speeding, they just say you were. If you just tell the judge you were not speeding and that it is his word against yours and that you are innocent until proven guilty, you will lose. I can think of two times when the cop told flat out lies about me in court. It sucks, but that's also just the way it is in life sometimes.
Investment is good and working is good so you want to encourage them. Marginally tax them and you get marginally less of them.
Each company along the step of a VAT pays their share, so there's no single point of compliance at the end that could be bypassed. If I change $4 of ore into $10 of widgets, I pay a tax on the $6 increase. You take 4 $10 widgets and use them to make a $70 machine. That's a (per widget) $3 increase. Each step notes the value-add and pay N% to the government. I can fight with you on the cost of the $10 widget, but either way the N% is getting paid.
In effect I just pay a tax on all my outputs with a credit for all the tax already paid on my inputs.
I doubt we'd actually *replace* the income tax with a VAT, but we might be able to lower the income tax enough that people spend less time fighting over details. (And the income tax is also where you can have a progressive tax on higher-earners.)
Also, the title of your Substack does sound very self-deprecating! :) I know you have a different reason for it, but was that really completely unintentional? I always found it funny.
It's a hipster way to filter out the uncool. "Oh, you haven't read Weber's essay "Politik als Beruf"? Oh. You haven't heard of Weber? Oh. Maybe you should try a different substack?"
I read it as a shot at his previous position in commercial media, with its click-driven pressure to have quick-reaction takes (fast) on current hot topics (interesting).
Like the substack is him saying "that sucked, I want to do the opposite now."
I first read the blog title knowing Yglesias's views and without knowing the quote. And yet it instantly made sense. He's not for fast, radical, and "interesting" changes, he's believes in the policy merits and political strategy of policies that are slow and boring.
Unmentioned, but plainly downstream of the lack of enforcement is that IRS cuts are an increase on taxes for honest people and a tax cut for liars and cheaters. It is basically rewarding Donald Trump and his ilk for being scumbags. It is a very emblematic distillation of the Trump theory of governance.
Reminder that Donald Trump seems to have a genuine, cross-partisan affection for fellow dishonest cheaters to the point that he pardoned corrupt Democrats just kind of on a general empathetic impulse of fellow feeling.
I don't think he pardoned Blagojevich out of any "empathetic impulse" (is Trump capable of that?). By pardoning the biggest symbol of corruption of his era, Trump sent the message to any hesitant suitors that bribery and corruption is no longer punished but actively encouraged.
Yeah but he was just referring to carrying forward losses IIRC. It wasn't a great point by Hillary Clinton. A good retort would have been "it means you suck at business." Only problem is that would have implied that her initial criticism didn't make sense.
I have found my professional interactions with the IRS to be characterized entirely by incompetence and Kafka-esque bureaucracy so I fully understand where the GOP is coming from emotionally. The average small business IRS interaction (across a small but material sample size) is they send you a letter with a tendentious interpretation of a complicated issue. You could choose to fight it but they will tack INSANE fees and interest every day it goes unpaid. Moreover now you have a team of people whose job it is to get *something* out of you so they’re not just going to fold. And even if you did contest it, the IRS won’t read your responses before the system automatically sends out threatening letters. So often you just pay it even if they’re wrong.
So when the Biden admin decided that there was no upper bound to revenue raised by IRS spending I was ready to dunk all over them. But it genuinely is true that collections are correlated with staffing and the IRS was probably understaffed when IRA passed. So I guess my only advice is that it rings hollow to people to compare the IRS to a beat cop keeping the neighborhood safe because that’s not how they behave. Maybe an IRS reform where new hiring is exclusively concentrated in customer service and large audit work would get some public support? “How do we make IRS spending popular” is a genuinely hard question even though I’m convinced it’s kind of a good idea on the merits.
I grew up hearing horror stories about the IRS but have never once had an issue. Had an audit (just one of those small "can you send in XYZ document?" versions) at one point and they ended up INCREASING my refund. I got on the board of a small non-profit and both the IRS and CA FTB were HUGE helps in undoing some sheer incompetence by the company's previous accountant and leadership. We went from owing 3 years of tax bills to getting thousands of dollars back once we fixed the paperwork.
I know these entities aren't perfect but I realized that they're just trying to do their jobs within a creaky system. There's stuff to improve and it certainly CAN be politically weaponized, but those are just my experiences so far. Maybe I'm just lucky.
Now, dealing with hospital regulators and city permits, THAT can be a red-tape hell.
The IRS hasn't been bad in my experience, just slow, and it got faster after we beefed it up in 2021. My personal hell... is "construction permitting in an ordinary suburban jurisdiction of 10,000 people."
Incompetence, lack of capacity leading to outsourcing, regulatory capture and rent-seeking by the private sector, treating permitting as a revenue stream by the public sector, incredible sloth, weird requirements that are unheard of anywhere else, stupid nitpicking bullshit in the inspections phase...
The average suburb is so shittily run that it's not even funny, disguised only by the nature of selection effects on their population.
The suburbs here are starting to bump up against the need to replace and retrofit substantial amounts of infrastructure, which will get much worse over the next 30 years. Those costs have begun to trickle into water and gas bills, user fees, and tax burdens.
Their governance mode is going to melt the fuck down when the selection effects weaken relative to denser cities and they end up with a more proportionate share of poverty and social ills.
Known plenty of small businesses that failed because they didn't have the runway to handle year-long permitting delays. It is truly absurd.
If you own a monopoly on a service and can't deliver the goods, then people get pissed. The result is a competitor enters or, in the case of the public sector, someone turns you into a campaign promise.
"The suburbs here are starting to bump up against the need to replace and retrofit substantial amounts of infrastructure, which will get much worse over the next 30 years."
I'm curious, how old are these suburbs? What do you see as the largest driver in costs to replace & retrofit?
If you look at every old city (Boston to Baltimore, Chicago, Minneapolis, Cincinnati, Cleveland, St. Louis) they have very large streets budgets, in large part to cover for very large gas, water, and electrical maintenance needs. This really started kicking into overdrive in the 1980's and pretty much plateaued by 2000, continuing to present. This is how it will be from now on; 5% of a given city's streets will be torn up at any given time for repairs on infrastructure that's past the end of its expected life and has finally given up the ghost.
The suburbs surrounding Philadelphia are between 30 years and 80 years younger than it, and roughly a third to a tenth as dense. A third or so of them don't have gas service, but virtually all have water and sewer lines, and of course electrical.
We should expect the costs for maintaining all of those things to rise significantly over the next half-century before plateauing.
Our gas utility's capital program and maintenance spending is around a billion over 5 years, the water utility spends around a hundred million annually, Streets needs a hundred million a year at present. Construction costs in the suburbs are somewhat cheaper due to less complex staging and congested conditions, by maybe 25%, and wear and tear on roads and underlying buried infrastructure is lower due to lower vehicle mileage per street by about 25%, though often offset in part by more freight traffic. So as a purely theoretical exercise, not accounting for state/federal programs, the unit (per year per mile) maintenance costs of suburban linear infrastructure should converge mechanistically to around 60% those of Philly's urban costs. When you have 6X as much linear infrastructure per capita, which is a credible estimate here, maintenance thereof will converge towards 3-4X our per capita costs. That would be like 40% of current non-school revenues, which can only be solved by raising taxes and user fees significantly.
The suburbs are already seeing increasing need for social and welfare programming as poverty starts to rise in lots of places. Combined with infrastructure, it's going to amount to people having to pay for the privilege of living in less dense environs in a way which has never been the case in the US before now.
Plenty will choose to! The suburbs are rich. The country is rich! We can afford it.
But at the margins it will change the calculus for many people, which in turn will change the distribution of poverty within American metro areas, further changing the calculus, etc.
I can see much of this broadly, but I'm extremely doubtful that "maintenance thereof will converge towards 3-4X our per capita costs." I'd be interested in seeing numbers for older suburbs around Philly or other such cities who have lower densities.
Then again, maybe I'm overestimating what the current budgets when thinking that growth level is unlikely.
I just did the math with PennDOT data; the Collar Counties have 3X the roadway miles that Philadelphia does per capita, and from what I can gather the typical road width is substantially larger, so the differential in paved area is wider still, probably closer to 4X
PECO maintains around 2X the gas line length for a somewhat smaller customer base, compared to PGW.
The differential for potable water piping is around 3-4X, based on a scattering of suburban jurisdictions that publish data. The water authority where I grew up, which is a pretty representative swathe of the burbs including four denser old rail towns and the surrounding exurbs, serves 36,000 households and has 600 miles of pipe; PWD serves 700,000 households with 3100 miles of pipe. A casual check of other suburban water authorities is similar.
Given that electrical is shared across the region there's no particular reason to consider it here, but that differential should yawn much wider than any of the others given the universality of electrification compared to public water/sewer service, let alone natural gas distribution.
So it's probably not going to mechanistically converge on 3-4X, now that I'm digging in detail, rather more like 2-2.5X per capita costs.
Anyway, we're already starting to see those costs get baked in in many suburban regions. Aqua's entire business model is to buy suburban utilities with deferred maintenance that municipalities politically cannot afford and do the maintenance, then increase rates by the necessary amount plus a healthy profit margin (that's probably still lower than bond financing costs would have been for a small municipal water authority). People throw a fit but there's no other possible outcome.
Poverty has been steadily creeping up in the suburbs while flat or maybe declining in the city.
Hard to tell what the future will bring, but there's some cause to expect considerable convergence here between suburbs and their urban cores, which will be heavily amplified if racial depolarization trends both make state-level GOP organizations care about cities and increase the competitiveness of their politics and governance.
I think the variance depends on who ends up on the other side of the table. Some times you get the guy who suspects the taxpayer is cheating and takes personal offense at that and then goes at it with a gusto we don't normally associate with a government employee.
Self-employed person here who's interacted with the IRS several times, has owed them money before, etc. Everyone I dealt with there was professional & none of it was really that difficult.
>INSANE fees and interest every day it goes unpaid
When I owed them (for taxes that I simply hadn't paid- was totally my fault), I'm pretty sure the annual interest rate was 8%
They've paid me the interest they owed me without me needing to do anything.
When Matt and others say reduced IRS staffing will lead to reduced compliance and reduced income, then everyone on both sides internalizes the role of the IRS employees as increasing the revenue the government gets.
Many of them are just accounting nerds and they want to determine the true number each taxpayer owes and then correct the system to say that. My son had his return auto-corrected and given back a massive pile of money. (I can't keep his attention long enough to find out what happened but I think it was EITC and I don't know why TaxAct didn't catch this.)
I think the framing of "fewer employees -> less revenue" is bad for this reason. I'd suggest "fewer employees -> less accurate returns" instead.
I think this negative interaction you had with the IRS might have been in an earlier era (80's perhaps) when there was a far higher audit rate and the IRS had a more adversarial "in your face" approach to taxpayers. I've never been audited or even known someone in my personal life who was audited by the IRS since the beginning of the century.
I've worked at companies that were subjected to routine IRS audits, but they were few and only related to smaller business segments. A lot of them ended up with zero assessments.
I've also found most IRS employees I've talked to on the phone to be knowledgeable and reasonably intelligent. The stereotype of Federal employees perpetuated by conservatives that they are idiotic diversity hires just simply isn't consistent with my experience. I am a tax accountant specialzing in business taxes and I literally call the IRS all the time.
Now some states' government employees - that's a different story!
A friend’s dad is a billlionaire with a charitable foundation. Said friend is audited every year. Does not complain about it, and in fact has only nice things to say about the professionalism of the process.
I expect for billionaires the tax return is the start rather than the end of determining their tax bill. Auditors will show up and talk things over with your accountants regardless.
"The billionaire had a good experience with the auditors" rings the same as "the billionaire had a good experience with the police." Auditors aren't going to come in hot for the same reason a beat cop isn't going to come in hot when walking up to the billionaire's front door. It's someone who can fight back.
“it rings hollow to people to compare the IRS to a beat cop keeping the neighborhood safe because that’s not how they behave.”
Have you not come across the viewpoint that some people in some neighborhoods find that beat cops often wield power arbitrarily and punish those who attempt to assert their rights?
Beat cops in neighborhoods also make mistakes and are not exactly known for their willingness to back down if wrong, and the advice in interactions with them also generally amount to "just go along with it, it's not worth the effort." This is the nature of enforcement.
The problem with "abolish the police" is not that police do not occasionally make errors that are very bad for the targets of the errors, it's that one must perform a cost-benefit calculation on whether those errors are worse than the effects of fewer police on crime.
We should have the equivalent of public defenders, but for audits. However, I suspect "let's have more public defender types and spend the money required to do so" wouldn't be the most popular position in the GOP.
The only time that I had to use my audit insurance, the insurer wouldn't cough up, so I had to take him to court. The audit insurance litigation wasn't cheap, and I hadn't budgeted for the expenses. Ever since then, I make sure to keep my audit insurance litigation insurance premiums paid up.
I pay for it and used it once so far. A simple letter audit and it worked out and saved me a lot of time. (The IRS doesn’t like IOLTA accounts — cause they show you receiving the funds while lawyers and their bars don’t count the money in the IOLTA account as theirs.)
Friends of mine say/post stuff like this all of the time and it really blows my mind. Like if you think through the implications of living in a country with no ability to collect taxes then you're likely living in a really poor and dysfunctional society. The ability to collect taxes is basically what separates the first world and third world and very few people would want to live in third world countries - but maybe they assume they'd be rich enough to not feel the difference.
It's California and he can afford guns and ammo. Hard to know which side of the limit he's on. And also the question of whether he's already lying on his taxes and is hoping the IRS collapses before they catch him.
I said to a friend of mine a few months ago "I don't think there will be any taxes soon" and it's a good thing Thomas Friedman wasn't there to overheat it.
“There was this infamous moment in George W. Bush’s first term when Dick Cheney said, “Reagan proved deficits don’t matter.” And for most of the 21st century, they really haven’t. But that stopped being true during Joe Biden’s term, and it remains untrue today. If we cripple the government’s ability to collect taxes, it’s going to be a very real problem for the country. “
Hamstringing future Democratic administrations sounds like a feature, not a bug, to the GOP.
"I think a reasonable person could argue that the US tradition of siloing information for privacy reasons goes too far and is counterproductive."
... is a very important point. Case in point: many states have tried to reveal the value of different college degrees by tracking graduates earnings, and the College Scorecard tries to do this at a national level. But the information is of limited value because the government is hampered by privacy laws from matching data in a really effective way. It would be nice to aggressively shut down degree mills that put people into a lot of debt without raising their earning power. But that can't be done, because privacy rules constrain data sharing in ways that make it impossible for policy makers to systematically determine which those are.
Making people trust the government less seems to make it likely that more information will get siloed.
The big irony is that the United States’ private sector (health care apart) is probably the least regulated in the western world.
People here trust private companies (to have their data lost in a privacy breach) much more than trust the government (to much less likely lose their data).
The government has a lot more power to hurt me using my data than the private sector does. Some exceptions might be mortgage lending and insurance coverage, but credit reporting and medical records are individually regulated. The stakes about which ads I’m shown are trivial by comparison.
While I mostly agree with the sentiment, I think this reflects an American-centric view of things, which goes to show why there is much less private sector privacy regulation than in Europe.
You’d have a much harder time convincing Europeans that private sector-held data has as little value as you say.
MY gets at this a little, but the most pernicious thing about defunding the tax police is how it reduces trust in society. You feel like more and more a sucker for following the rules. It begets FOMO for cheating on your taxes.
Like most other things about MAGA, it pushes us away from being a high-trust society and closer to a banana republic.
The election of Trump 1.0 Feels like such a fundamentally low interest rate phenomenon. The public was only able to care about the issues he brought to bare because we were mostly out of blocking and tackling white knuckle fiscal politics. The economy was still under stimulated but there was no juice for additional stimulus from Obama and GOP Congress. So we can focus on walls and scandal etc. Compare the 2016 debate to the famed 1992 debate and how focused *voters* were on the macro economy! Trump comes in, passes a largely regressive, albeit stimulative, tax cut, gives the economy the last bit of juice it needs and we are off to the races. 2018-2019 was legitimately the best economy most voters had experienced since the 1990s.
Covid, Inflation, Rates hikes, yadda yadda. The world changes. The free money days are over. Trump wins for a myriad of reasons but at least partially on a belief he can Make America 2019 Again. But the directionality is now misaligned and money is no longer free.
ZIRP plus zero marginal cost businesses like Facebook created a lot of dumb billionaires who think government can be reduced to a bunch of AWS web services plus ChatGPT.
In the past at least you had to do it for 30 years and manage a lot of relationships. Steve Wynn is a shithead but he got there by building giant casinos and running them over a long period of time.
Also it was genuinely an open question as to whether voters care more about inflation or unemployment, and now that question has I think been definitively answered (both by the election and by Stantcheva)
I'm glad it has been empirically proven but it also seems so obvious. Even in high unemployment, 10% lets say, 90% of working people have jobs! and not all 10% unemployed will be sympathetic in the eyes of the 90%. But 100% of people pay higher prices.
I'm not sure this logic is so obvious. Leave aside the fact that there are widening circles of unemployment (people you love get fired, your fear of also being fired increases). Perhaps why inflation had such a powerful effect on people was that they had little or no prior experience with it; it was a new and very bad thing. Unemployment was also bad, but they had more recent experience with it (the GFC, COVID).
New bad things tend to be scarier than those we have experience with, even if the latter are also bad.
Yeah, I've seen this point and it doesn't make sense to me. Sure, you might have a job, but people notice when they go years without a pay raise and can't job hop.
Matt leaves out possibly an even bigger part of tax complexity and need for tax police, defining "income." It is tricky because there are good reasons to tax some kinds of cash inflows differently from others -- dividends and capital gains being the most obvious.
That is one reason, although not the main one, that we ought to be taxing "consumption" progressively instead of "income."
a) The tariffs are not levied only on consumption goods.
b) A proper single rate national sales tax on consumer goods/VAT would be preferable to the wage tax for SS/Medicare/unemployment insurance, but not for replacing corporate and individual “Income” taxes as it is not progressive in the amount consumed.
Crippling the IRS's enforcement ability will increase the deficit in spite of the cuts that are being made. Once again, we see that Republicans don't actually care about the deficit and only care about lowering taxes as much as possible, particularly for the rich. We need politicians to take the budget deficit seriously; as Matt said, increasing the deficit will lead to an increase in either inflation or interest rates, which will have a real impact on ordinary Americans
Isn't it interesting how the deficit has gone up as tax cuts (and cheap money and defunding the IRS) have been de rigueur for the last 25 years. "They" have won, the debt is now unpayable, $350,000 per working taxpayer.
Except revenue as a percentage of GDP has actually stayed in a pretty narrow band for decades despite marginal tax rates changing a LOT (mainly going down)
It's great to get coverage of some underreported topics. That said, this seems a bit speculative. I think lax enforcement will take a while to filter through to behavior, and the pace of the Trump administration's race to either tyranny or velvet Revolution seems fast enough that this is unlikely to matter.
That said, I wonder how people 's reduced trust in the government might alter tax compliance. This year I was thinking, "Am I sharing this information with Elon Musk?"
Credible sources like the Yale Budget lab are already assuming this will significantly hurt our deficit, potentially $637 billion over a ten year budget window.
Well, if crippling the tax police really does significantly undercut revenue, that's yet another contributing factor to what might quickly turn into a fiscal crisis.
Other factors are:
- Dedollarization, which will make it harder to borrow or roll over debt;
- Ruinous tariffs which will slow the economy;
- Likely big tax cuts.
I'm actually not too apocalyptic about the impact of a fiscal crisis. Shock therapy has often worked pretty well over a 10-year horizon or so. Under this political leadership, prospects are much dimmer, but then, a Great Depression might put an end to this political leadership pretty quickly, if Republicans wake up or Democrats win control of Congress in 2026.
But I sure don't want to settle for the silver linings around that cloud! If investors stop buying Treasury debt, that will be a bad day.
"I think lax enforcement will take a while to filter through to behavior"
In Philadelphia, at least, it didn't take very long at all between when the police stopped enforcing traffic laws and people began running red lights boldly and frequently -- to the point where it became common to see cars driving around those that did stop to run the red light in the wrong lane against oncoming traffic.
Finding out Romney paid an effective rate of 13% and Trump paid no taxes most years was not good for voluntary compliance. A busy plumber pays twice Romney’s rate plus lots of payroll tax.
I was a landscape contractor, as a sole proprietor we also pay both halves of our Social Security (most people get the employer to pay half). Granted, there are deductions that can help defray that a bit but tax time was usually drought with the unknown, lol.
Dude, this is the whole point of setting up an S corporation for small business folks like you & I. You're required to pay yourself a very minimal salary, and you pay the 'two halves of Social Security' on that salary amount. Then the rest of your compensation is taken in 'distributions', and you pay *neither half of SS taxes on the distributions*. Ask an accountant, they'll explain it better than me. But an S Corp is way tax-advantaged over an LLC
This trails off dramatically! SS gives a substantial boost to "low income' workers at the expense of people's benefit scaling slowly compared to their contributions.
Do you have a paid accountant or at least a recurring vendor like Mint, TurboTax, and numerous other personal, professional, business software? If so, they may already be making suggestions for estimated taxes and considerations around ordinary income vs. capitalized income. Same for expenses, ie. conta revenue. Many professionals can easily deduct substantial expenses, including financial services, without incorporating.
Even maximizing compliance out of a moral duty, fear of audit, or just laziness can cause complications. Ie, how the SALT cap changed CA tech workers withholding as well as adjusting withholding for sales of stock based comp. Eg, In theory, and recent federal instructions, gifting vested stock to a charity is beneficial to all parties, including simplicity for the IRS.
Moreover, I myself, and several people that I know, have constructed assets at the IRS in the form of Alternative Minimal Tax credits and Capital Loss credits. Better than being audited, but it does complicate financial planning, including future estimated taxes. Moreover, it sucks to spend 3 hours on hold just to verify an address at the top of a PDF of a prior filling to claim a small refund electronically. Even weirder is a low 4 figure check from the US treasurery with no explanation.
And then there's the criticality in using "return to sender" on all financial mail for other people as well as thoughtful use of USPS forwarding services. Sometimes that garbage even comes back in original form, ie. with the return to sender label, indicating this is the last known address for someone and I need to shred or toss the documents. But at least then the financial system, including the IRS, appreciates the destruction of an id for a legal person.
I'm certainly withholding less... First of all who knows if I will have a job. But if it turns out that the IRS is a complete shitshow or they just cut taxes to morning anyway then I'm not gonna count on getting a proper refund. I'd rather potentially owe and make them wait for it
I think most white-collar Americans deeply underappreciate how much tax fraud and crime (as described by Mr. Scrupulous here) goes on in this country. I grew up around blue collar workers primarily in the construction and farm industries where many people were operating as businesses for tax purposes.
The irony to me is that the people who complain the most about taxes are the ones paying the least. It also muddies the waters deeply on "income". Sure a white collar workers' $150k salary might seem extremely high to somebody making $100k in 1099 revenue, but at the end of the day, the take-home could be the same or lower after massive parts of the 1099 earners' lifestyle are subtracted from that revenue number. Take enough 'losses' or 'expenses' and all of the sudden you qualify for all kinds of government subsides too. It's just massively criminal.
edit: I’ll add this is not just blue collar industries either. I know doctors working for groups and CRNAs doing the same thing.
I once worked for a company that had hundreds of 1099 sales agents across the country selling its products. We looked into converting them into W2s and the vast majority of them were extremely allergic to it despite getting benefits they otherwise weren't getting - because they'd no longer be able to write off expenses in the same way.
Small business cheating is straight forward enough to get away with, but working at a Big 4 I’ve seen several audits just… stop since Trump took over. No further communication, the auditor is either busy or fired.
Of course, interaction with the IRS isn’t limited to audits. Sometimes you need something from the IRS for whatever reason. A foreign client made an investment in some US securities and ended up getting over withheld upon. As a result they had to file a Form 1120-F and claim the refund. A month before Trump took office we got a notice that they couldn’t verify the withholding. By the time we had sent in a response, chaos at the IRS had made it so that it’s going to be months before they even read it. Now the client has $2.5 million stuck at the IRS and a lack of staff is making it very hard to get back. This kind of administrative inconvenience makes the US less attractive to invest.
There is going to be a huge backlog of crime and tax fraud after this administration. We are going to need to rewrite laws to expand the statute of limitations.
Let alone the transparently obvious insider trading by politically connected allies of the administration. Once SCOTUS rules the President can hire and fire anyone they want, our guy will at least have the opportunity to put in loyal enforcers at the SEC and IRS to pursue this. I'm not saying we should make up charges, but I am saying in a world of limited enforcement resources, there's no reason that we shouldn't prioritize people associated with the Trump administration over apolitical tax cheats, who we may or may not have the ability to get around to eventually. Creating strong disincentives to use political connections in order to make money is a real and legitimate policy priority, not just retribution. Elections have consequences, or so I'm told.
Defunding the IRS tax police is dumb and bad and the Trump administration is wrong to do so.
But I want to add some context to the difference between the IRS and the police. It comes down to burden of proof.
As Matt clearly demonstrates, as a person's tax situation becomes more complicated you realize there is no "right" answer. Rumsfeld's letter is both funny and true. One's tax owed becomes a question of judgment, estimates and approximations. This is even more true as businesses move from small to medium to large.
The difference between the police and the IRS, though, is that in an audit, the burden of proof is on the taxpayer, not the IRS. So if the IRS says "we disagree with your judgements and think you owe XXX", then the taxpayer must decide to either pay the tax (and fine plus interest) or hire lawyers and challenge the ruling in Tax Court. You are guilty until you prove your innocence.
Add in the fact that IRS auditors are not the smartest, most hard-working and motivated group of tax accountants, so their judgements are often incorrect. The smartest ones work for tax advisory firms or big companies. It is a situation that is ripe for even the law-abiding taxpayer to feel stressed, defensive and to believe the audit itself is the "problem".
This doesn't justify anything the Trump administration is doing, though. I do agree that a consumption-based tax would be much better, more efficient and more fair (as Thomas Hutcheson so often notes). But we have the system we have and it is irresponsible to just walk away from the duty to faithfully execute the laws (tax laws, in this case) because of the audit process.
I don’t really see how this is different from the regular justice system. If the police / district attorney say “we think you have committed a crime” then you must decide to either plead guilty, or hire lawyers and challenge their position in court.
I take your point that there may be a different standard of judgment (reasonable doubt vs whatever the IRS uses), but the setup is fundamentally the same.
It is very different. The DA must show proof of a crime to a judge to even get you to court via an indictment. The IRS doesn't need to do anything other than assert its position to start enforcement actions.
The formal difference between IUPG and GUPI is huge and important and at the foundation of our Anglo legal system.
In practice, though, how is a defendant likely to fare if they hire no lawyer, prepare no defense, and simply repeat to the court, "I am innocent until proven guilty"? My guess is that it will not go very well for them. To the extent that one can no longer count on one's unfortified innocence to prevail, Andrew S's concern about hiring lawyers etc. is justified.
"The DA must show proof of a crime to a judge...." I assume that by "proof" you meant no more than "probable cause"?
Yes, proof of probable cause. Which is then viewed by a third party — the judge or the grand jury. Not the DA alone. The IRS has no third party review before they impose their own conclusion.
It is famously easy for prosecutors to get a grand jury to proceed to indictment. But I agree it does pose a basic guardrail to the system. It might be worth considering some sort of independent tax magistrates who need to verify that there exists some non-zero quantity of evidence, but I doubt this would have the effect you're looking for. The IRS may be wrong in its conclusions, just like prosecutors often are, but I don't think they typically go around making these judgements on the basis of literally no evidence, which is what such a system would prevent.
I was a juror in a case that pretty much went like that (though there was a public defender).
Guy was in a car accident that killed a passenger, was charged with vehicular manslaughter. Cops arrived after the crash and he blew clean on a breathalyzer and subsequent drug tests. Cops said "we didn't see him but obviously he was driving recklessly" and he kind of just said "yeah I made a mistake, but cars are dangerous and a reasonable person can make a fatal mistake without being reckless. Prove I did otherwise." They did not really even try and so we acquitted.
"They did not really even try and so we acquitted."
Interesting. Did you acquit because you believed his story (i.e. that he was unlucky but not reckless) or because you thought that even if he was dissembling the prosecution failed to make its case?
The jury was a little split on how much we believed him, but unanimous in that we weren't close to reaching "beyond reasonable doubt" territory.
On the "did not try" front - a big part of it was that there was a police dashcam video of them arriving on scene, pulling the guy out of the car and arresting him. In the footage there was a small crowd of people around when they arrived. The public defender asked "did you speak to anyone present to find out what happened" and the officer on the stand said "no, we thought it was pretty obvious what had happened."
That line stuck out a lot in the jury deliberations. I really would not want to be in a scenario where I'm accused of something while there are witnesses around and no one stops to at least get their story.
I'm a tax accountant and I agree with you.
"I'm a tax accountant and I agree with you."
Friendly advice:
Because of the structure of threads here, it's almost impossible for anyone to tell what or whom you are agreeing with, unless you specify the content with which you agree, or at least the poster with whom you agree.
Otherwise, all we can tell is, "he agrees with some previous view, or maybe the opposite view."
That's why I tend to begin my comments with a quotation of some relevant bit of the post that I am reacting to and engaging with. It allows later readers to identify the players and the positions.
Sorry - I agree with this (though not with the last paragraph [omitted] - I agree with a consumption tax taking over for some of the income tax burden, but not all of it, a lack of an income tax on the wealthy and affluent is incredibly regressive)
By John from FL:
Defunding the IRS tax police is dumb and bad and the Trump administration is wrong to do so.
But I want to add some context to the difference between the IRS and the police. It comes down to burden of proof.
As Matt clearly demonstrates, as a person's tax situation becomes more complicated you realize there is no "right" answer. Rumsfeld's letter is both funny and true. One's tax owed becomes a question of judgment, estimates and approximations. This is even more true as businesses move from small to medium to large.
The difference between the police and the IRS, though, is that in an audit, the burden of proof is on the taxpayer, not the IRS. So if the IRS says "we disagree with your judgements and think you owe XXX", then the taxpayer must decide to either pay the tax (and fine plus interest) or hire lawyers and challenge the ruling in Tax Court. You are guilty until you prove your innocence.
Add in the fact that IRS auditors are not the smartest, most hard-working and motivated group of tax accountants, so their judgements are often incorrect. The smartest ones work for tax advisory firms or big companies. It is a situation that is ripe for even the law-abiding taxpayer to feel stressed, defensive and to believe the audit itself is the "problem"."
Thanks, Will I Am!
They don’t need to show proof of a crime. They just need to show proof enough for the judge to proceed. I’d imagine this is pretty easy for the IRS to accomplish given the nature of audits.
In criminal cases you are innocent until proven guilty. The burden of proof in criminal cases is beyond a reasonable doubt.
The reverse is true for taxes
Unlike the police, well-known as the smartest and most diligent people you can find?
“Add in the fact that IRS auditors are not the smartest, most hard-working and motivated group of tax accountants”
This statement made me shockingly angry. I hate this unpatriotic sentiment on the right that you’re “smart” to minimize your tax burden through ever more esoteric schemes that might be letter of the law legal but clearly violate the spirit of the law as if it’s some arms race vs. the IRS. How embarrassing. I was interested last year in just how much I was “over-paying” by doing my own taxes so I met with two accountants. The answer was ~ $80k. I passed. This is the town wine analogy playing out right in front of us and all our greedy fellow Americans will be drinking water for our celebration. It’s sick.
My interactions with the IRS have not been near that adversarial. Specifically, they would tell you what form you need to submit to support a claim. Usually even offered the common mistakes they saw in situations like ours, to help in supporting our case.
If you didn't have it, then I guess you could get to where you are and fighting to prove something?
Yes, exactly. I have been (incorrectly) accused by both the IRS and a state government of owing more money than I did. It was a huge hassle, (almost) all due to their mistakes, it cost me a bunch of my time, and was of no benefit to society.
Here is a rough outline of what happened:
- My wife and I filed separately. I took the mortgage deduction, she did not.
- There was some money moved from one IRA to another IRA.
- There was some money moved from an after tax 401k to an IRA. There was a small amount of profit we owed taxes on (like a $150 profit) that we neglected to pay (this was the one mistake we made).
- After filing the return, the IRS modified my wifes return to give her the mortgage deduction, which she was not qualified to get, because I got it. The IRS auto-deposited the amount into our bank account.
- The IRS then accused her of filing a wrong return. The alleged errors (which were not clearly explained--we had to call and ask about them) included taking the mortgage deduction (which she didn't do), not paying taxes on the IRA rollover (which were not owed), not paying taxes on the $150 401k profit (which were due!), taking unqualified 529 distributions, and maybe one other thing. The IRS said she owed something like $12,000.
- I had to go over the letter sent by the IRS in some detail to figure out what they were accusing my wife of, gather documenation showing IRA transfers, legitimate 529 expenses, etc. The letter came like two years after the return was filed, so it was even more of a pain to find everything.
- The IRS eventually agreed the only thing we owed was the mortgage deduction (which we filed correctly, and they changed!) and like $40 on the 401k profit.
They're not exactly running a tight ship over there. And this wasn't even technically an audit--just a routine "correction" of a return. I also have a small business with a small number of ordinary expenses I deduct, like buying a computer. If I had to prove all of those deductions, or hire an accountant to work with me on proving all of that, it would have cost me probably $20,000 in time and fees.
So I'm not mourning the excessive reach of the IRS being pulled back.
Your last sentence is uncompelling. It’s certainly true that the mistake was of no benefit to society. On the other hand, as I think Matt compellingly argues, aggressive enforcement *is* of benefit for society. And one consequence of enforcing the laws is that sometimes the state will make mistakes. We should have every sympathy for someone who is arrested for a crime they didn’t commit, and make restitution for harm done to them, but if someone said “I’m not sorry to see the police defunded after how they wrongly arrested me” I could understand their personal viewpoint but couldn’t agree as a matter of policy. A police force that never arrested the wrong person would almost certainly be making far too few arrests.
"Aggressive enforcement" looks a lot more like what happened to me, and a lot less like what Matt envisions.
I remember Matt proclaiming how the $80 billion Biden got to spend on IRS was going to pay for itself many times over. How did that turn out? Last I saw, Matt was trumpeting an additional...$3 billion in revenue.
Wow, only $3 billion! What a disaster. Clearly both Biden and Matt were wrong, and (counterintuitively!) allocating additional funds for audit enforcement didn't increase revenue at all.
Or, alternatively: the numbers you're quoting are just totally made up and the actual sums are wildly different. Hey, maybe there are even some online resources we could use to put real numbers to this question. I tried that, and here's what I found in the first results [1]:
* The total new budget allocated was $60 billion, but this was spread over 10 years (that's $6bn/year, just to be helpful.)
* In 2024 alone, audits of filed returns netted an additional $25 billion in revenue vs the same total in 2023. (ETA: this should read 2021.)
These actually seem like pretty decent early results. Now obviously a huge surge in revenue during one year does not mean this would have been sustainable over the full 10-year period! Unfortunately we'll never know, since Trump and DOGE have now wrecked the IRS.
[1] https://news.clemson.edu/new-irs-funding-boosted-tax-enforcement-and-improved-taxpayer-services-during-the-biden-administration/
"* In 2024 alone, audits of filed returns netted an additional $25 billion in revenue vs the same total in 2023."
Nope, that's not correct. The increase of $25 billion (from $75 billion to $100 billion) wasn't year over year, it was since the IRS got the extra money--i.e., since 2021. Due to inflation, total tax receipts went up 25%, from ~$4 trillion to ~$5 trillion over the same time frame. The enforcement revenue went up a slightly higher percentage, but I don't see anything in the cited IRS report that credits extra enforcement. With covid, inflation, etc., I would need a lot more to believe that the extra enforcement is what made the difference.
Oh, and sorry, I was wrong. The number the IRS itself credits to extra enforcement wasn't $3 billion. It was $1.3 billion. https://apnews.com/article/irs-treasury-tax-wealth-ira-2932f286c89b19b9ccecaaca2f4f2c2b . $1.3 billion return is a pretty awful return for a $6 billion/year expense.
"The number the IRS itself credits to extra enforcement wasn't $3 billion. It was $1.3 billion."
Read the headline on the article you quote: "Treasury recovers $1.3 billion in unpaid taxes from high-wealth tax dodgers"
This only refers to a subset of enforcement, not all enforcement. Specifically:
"Agency officials said since the program’s launch, almost 80% of the 1,600 millionaires targeted by the IRS for failing to pay a delinquent tax debt have now made a payment, leading to over $1.1 billion recovered. And in the first six months of a new February 2024 initiative, the IRS collected $172 million from 21,000 wealthy taxpayers who have not filed tax returns since 2017."
If you're going to claim that enforcement didn't work, and then you think you can buttress that argument by pointing to a subset of enforcement efforts, then you're not arguing in good faith.
Matt also said you can't just look at the actual amount they recover, you need to look at the increase in compliance.
That will diminish faster than the recovered amount, of course. If you have 99% compliance, then it's very hard to recover anything beyond the direct enforcement, because you're not going to push 99% up more than that.
That means it can be true that at the margin for Biden, additional IRS enforcement funding wasn't worth it* (because it didn't increase compliance(already high) + direct enforcement enough), but keeping the current (vs. a DOGE cut) is worth it, because the savings on enforcement are outweighed by a compliance loss.
*I haven't looked at percentage increases in tax receipts overall, so I don't know how much compliance went up with Biden, but I wouldn't be surprised if you are correct about the end result being < enforcement, just that I think the end result is likely higher than the $3 billion direct result.
"I haven't looked at percentage increases in tax receipts overall, so I don't know how much compliance went up with Biden"
I find it infuriating to read the comments section on a policy wonk blog where nobody seems interested in actually measuring the effects of any policy. Some random commenter asserts that enforcement didn't work, and everyone just accepts their word for it? Why not just Google the question?
TLDR, the IRS was allocated $6bn/year for additional enforcement. In 2024 they claim an increase of $25bn in audit revenue vs. 2023 (ETA: 2021). That may or may not have been sustainable, but it sure seems like the kind of fact you'd want to know about prior to having a policy discussion premised on random bad-faith made-up numbers.
[1] https://news.clemson.edu/new-irs-funding-boosted-tax-enforcement-and-improved-taxpayer-services-during-the-biden-administration/
Sorry, I had issues with the numbers even if they were accurate and didn't take the time to look more.(I at least make sure to say that I hadn't double-checked the numbers)
It looks like both your numbers and Kevin's have an error, but maybe I'm misunderstanding.
1) The act was over 10 years, so regardless you should (as you do, and Kevin does not) compare year-year, not 10 year:1 year (Don't complain about the enforcement returns on a fraction of the total years vs the total cost after 10)
2) In 2022, IRA got $80 billion for IRS/10 years. In 2024 that was reduced to $60 billion. I _interpret_ this as $8 billion for the first two years, $6 billion for each additional year. But I'm not sure where the timing comes in.
3) Assuming the article is correct, Kevin(responding to you) is correct that the $25bn increase is not over one year, but, I think he's also incorrect, in that the article says:
"This represented an additional $25 billion in revenue from audits when compared with the year prior to the agency’s budget boost."
That sounds like $25 billion comparing to the returns gathered in 2022. (Since the budget boost happened in August 2022, tax returns collected in April were already in). So that sounds like neither 1 year nor 3 years but 2 years.
Inflation over that time was... 1.08 * 1.04 = 12.3%? That would bump audits from $75 billion to $84 billion with inflation, which means they got about $16 billion extra in audits over what they would have gotten.
Since their budget in 2024 was _still_ $8 billion/year, that sounds like a 2:1 direct enforcement return.
_In addition_ to whatever revenue they collect from higher compliance.
If you're going to try to be pedantic, you can at least be correct. The $25bn increase (from $75bn, or about ~33%) was not since 2024, it was since 2021. So roughly in line with inflation.
This is a valuable comment but it also raises the question "do you measure bureaucracy in bureaucrats?"
https://www.astralcodexten.com/p/bureaucracy-isnt-measured-in-bureaucrats
The IRS should probably have a little less power and a little more oversight, but also both more workers and better workers, both of which they get with increased salary.
“I'm not mourning the excessive reach of the IRS being pulled back.”
That seems backwards. No one is pulling back the reach of the IRS. They are just asking fewer employees to do the same work, so more mistakes will be made and processing and resolving them will be slower. That seems like it would make more situations like yours, so you probably should mourn it.
Though it *feels* nice when someone who harmed you gets a pay cut, even if it leads to more harm rather than less.
Even Matt is using the framing of "more IRS agents means more tax revenue" which people hear the same way they hear "more traffic cops means more traffic ticket revenue". It's 100% understandable why people don't want the more cops in either scenario.
Change the framing. "More IRS agents means more accurate tax revenue."
I don't like this comparison. Speeding, on aggregate, makes driving less safe for everyone, but an individual instance of speeding is likely not causing harm. Every single instance of tax avoidance is stealing from the rest of us in a concrete way.
That's why it's important to sell traffic cops (or speed cameras) as "this will make the roads safer" and not "this will raise revenue."
Of course, you need to make sure the design follows through on that promise or else the voters will figure it out. (And every single speed camera proposal I've seen has been built for revenue.)
I mean, things like this happen. A witness misidentifies you in a crime, a lazy prosecutor is uninterested in your claims (which seem indistinguishable at first glance from the claims a guilty person would make) and suddenly you have to spend a bunch of resources retaining a defense attorney, making filings, etc., and the whole process is even more terrifying than an inaccurate IRS audit. But it's not a reason to pull back on enforcing the law (indeed, this error is fundamental to progressive soft-on-crime delusion!) It may be a reason to introduce procedural safeguards, or provide compensation, or some other corrective mechanism, but there's never a situation in which 'reduce the government's enforcement capacity' is a workable solution unless you literally believe the government is an illegitimate, net-bad entity and a world in which it ceases to function is a good world.
"there's never a situation in which 'reduce the government's enforcement capacity' is a workable solution"
This doesn't seem right. Imagine slavery still existed and you didn't have the power to abolish it, but you did have the power to defund the Federal Bureau of Runaway Slave Catchers. I say you defund. Not the ideal solution, but it is a way to make the situation better.
Also, payroll withholding is a pain. I’ve made a good faith effort to comply with all that, but I didn’t want to hire a cpa to account for a single employee. Now I owe penalties, nothing horrible, but the accounting burden of hiring one or two employees is a material fraction of the productivity you get out of them.
> but I didn’t want to hire a cpa to account for a single employee
Most small businesses have an accountant who comes in once a month or once a quarter to look over the books and handle the tax payments.
Even with no employees you want this.
I...don't think it's true that most small businesses interact with an accountant that often, though that's just going off my experiences rather than any sort of real data. I do know many small business owners and to the best of my knowledge they all dump a pile of receipts (figuratively) on the accountant once a year or even do their own taxes (gasp).
When my old boss at my old job at a small private sector firm fired our accounting firm, that's when we realized some funny stuff was going on.
Payroll withholding is the price we pay for a civilized society.
My general working assumption is that until you are in the position to have 5 or more employees it’s more cost-effective to have none and outsource all functions that would otherwise require them.
i agree. and ai can do alot of parapro work these days
This is less anomolous than you imagine. For a normal person, their most common interaction with the law is traffic court. The police do not present any evidence you were speeding, they just say you were. If you just tell the judge you were not speeding and that it is his word against yours and that you are innocent until proven guilty, you will lose. I can think of two times when the cop told flat out lies about me in court. It sucks, but that's also just the way it is in life sometimes.
Why would a consumption-based tax be better or more fair?
Investment is good and working is good so you want to encourage them. Marginally tax them and you get marginally less of them.
Each company along the step of a VAT pays their share, so there's no single point of compliance at the end that could be bypassed. If I change $4 of ore into $10 of widgets, I pay a tax on the $6 increase. You take 4 $10 widgets and use them to make a $70 machine. That's a (per widget) $3 increase. Each step notes the value-add and pay N% to the government. I can fight with you on the cost of the $10 widget, but either way the N% is getting paid.
In effect I just pay a tax on all my outputs with a credit for all the tax already paid on my inputs.
I doubt we'd actually *replace* the income tax with a VAT, but we might be able to lower the income tax enough that people spend less time fighting over details. (And the income tax is also where you can have a progressive tax on higher-earners.)
Also, the title of your Substack does sound very self-deprecating! :) I know you have a different reason for it, but was that really completely unintentional? I always found it funny.
It's a hipster way to filter out the uncool. "Oh, you haven't read Weber's essay "Politik als Beruf"? Oh. You haven't heard of Weber? Oh. Maybe you should try a different substack?"
I ban anyone who hasn't finished Phenomenology of the Spirit.
"You haven't read Hegel's critique of De Maistre? What are we even doing here?"
If anything, Matt being mildly indignant that it could be self-deprecating is a good bit
I read it as a shot at his previous position in commercial media, with its click-driven pressure to have quick-reaction takes (fast) on current hot topics (interesting).
Like the substack is him saying "that sucked, I want to do the opposite now."
He’s being ironic. The name is a double entendre.
I first read the blog title knowing Yglesias's views and without knowing the quote. And yet it instantly made sense. He's not for fast, radical, and "interesting" changes, he's believes in the policy merits and political strategy of policies that are slow and boring.
TI (half) learned about where slow boring came from. We need periodic refreshers for newbies like me.
To repurpose another comment section's joke...
"Today I half learned something" - Slow Boring
Unmentioned, but plainly downstream of the lack of enforcement is that IRS cuts are an increase on taxes for honest people and a tax cut for liars and cheaters. It is basically rewarding Donald Trump and his ilk for being scumbags. It is a very emblematic distillation of the Trump theory of governance.
Reminder that Donald Trump seems to have a genuine, cross-partisan affection for fellow dishonest cheaters to the point that he pardoned corrupt Democrats just kind of on a general empathetic impulse of fellow feeling.
What is Rod Blagojevich up to these days? Is he head of the elections commission yet?
I think getting Eric Adams off the hook was its own reward and any "now he'll owe us a favor" was just a cherry on top, to mix a metaphor.
I don't think he pardoned Blagojevich out of any "empathetic impulse" (is Trump capable of that?). By pardoning the biggest symbol of corruption of his era, Trump sent the message to any hesitant suitors that bribery and corruption is no longer punished but actively encouraged.
Didn't he say that evading taxes makes him smart?
Yeah but he was just referring to carrying forward losses IIRC. It wasn't a great point by Hillary Clinton. A good retort would have been "it means you suck at business." Only problem is that would have implied that her initial criticism didn't make sense.
I have found my professional interactions with the IRS to be characterized entirely by incompetence and Kafka-esque bureaucracy so I fully understand where the GOP is coming from emotionally. The average small business IRS interaction (across a small but material sample size) is they send you a letter with a tendentious interpretation of a complicated issue. You could choose to fight it but they will tack INSANE fees and interest every day it goes unpaid. Moreover now you have a team of people whose job it is to get *something* out of you so they’re not just going to fold. And even if you did contest it, the IRS won’t read your responses before the system automatically sends out threatening letters. So often you just pay it even if they’re wrong.
So when the Biden admin decided that there was no upper bound to revenue raised by IRS spending I was ready to dunk all over them. But it genuinely is true that collections are correlated with staffing and the IRS was probably understaffed when IRA passed. So I guess my only advice is that it rings hollow to people to compare the IRS to a beat cop keeping the neighborhood safe because that’s not how they behave. Maybe an IRS reform where new hiring is exclusively concentrated in customer service and large audit work would get some public support? “How do we make IRS spending popular” is a genuinely hard question even though I’m convinced it’s kind of a good idea on the merits.
“ INSANE fees and interest every day it goes unpaid”
What on earth are you talking about? The fees and interest are low compared to any situation you’d have with a company to which you owed money.
I grew up hearing horror stories about the IRS but have never once had an issue. Had an audit (just one of those small "can you send in XYZ document?" versions) at one point and they ended up INCREASING my refund. I got on the board of a small non-profit and both the IRS and CA FTB were HUGE helps in undoing some sheer incompetence by the company's previous accountant and leadership. We went from owing 3 years of tax bills to getting thousands of dollars back once we fixed the paperwork.
I know these entities aren't perfect but I realized that they're just trying to do their jobs within a creaky system. There's stuff to improve and it certainly CAN be politically weaponized, but those are just my experiences so far. Maybe I'm just lucky.
Now, dealing with hospital regulators and city permits, THAT can be a red-tape hell.
The IRS hasn't been bad in my experience, just slow, and it got faster after we beefed it up in 2021. My personal hell... is "construction permitting in an ordinary suburban jurisdiction of 10,000 people."
Incompetence, lack of capacity leading to outsourcing, regulatory capture and rent-seeking by the private sector, treating permitting as a revenue stream by the public sector, incredible sloth, weird requirements that are unheard of anywhere else, stupid nitpicking bullshit in the inspections phase...
The average suburb is so shittily run that it's not even funny, disguised only by the nature of selection effects on their population.
The suburbs here are starting to bump up against the need to replace and retrofit substantial amounts of infrastructure, which will get much worse over the next 30 years. Those costs have begun to trickle into water and gas bills, user fees, and tax burdens.
Their governance mode is going to melt the fuck down when the selection effects weaken relative to denser cities and they end up with a more proportionate share of poverty and social ills.
Known plenty of small businesses that failed because they didn't have the runway to handle year-long permitting delays. It is truly absurd.
If you own a monopoly on a service and can't deliver the goods, then people get pissed. The result is a competitor enters or, in the case of the public sector, someone turns you into a campaign promise.
"The suburbs here are starting to bump up against the need to replace and retrofit substantial amounts of infrastructure, which will get much worse over the next 30 years."
I'm curious, how old are these suburbs? What do you see as the largest driver in costs to replace & retrofit?
If you look at every old city (Boston to Baltimore, Chicago, Minneapolis, Cincinnati, Cleveland, St. Louis) they have very large streets budgets, in large part to cover for very large gas, water, and electrical maintenance needs. This really started kicking into overdrive in the 1980's and pretty much plateaued by 2000, continuing to present. This is how it will be from now on; 5% of a given city's streets will be torn up at any given time for repairs on infrastructure that's past the end of its expected life and has finally given up the ghost.
The suburbs surrounding Philadelphia are between 30 years and 80 years younger than it, and roughly a third to a tenth as dense. A third or so of them don't have gas service, but virtually all have water and sewer lines, and of course electrical.
We should expect the costs for maintaining all of those things to rise significantly over the next half-century before plateauing.
Our gas utility's capital program and maintenance spending is around a billion over 5 years, the water utility spends around a hundred million annually, Streets needs a hundred million a year at present. Construction costs in the suburbs are somewhat cheaper due to less complex staging and congested conditions, by maybe 25%, and wear and tear on roads and underlying buried infrastructure is lower due to lower vehicle mileage per street by about 25%, though often offset in part by more freight traffic. So as a purely theoretical exercise, not accounting for state/federal programs, the unit (per year per mile) maintenance costs of suburban linear infrastructure should converge mechanistically to around 60% those of Philly's urban costs. When you have 6X as much linear infrastructure per capita, which is a credible estimate here, maintenance thereof will converge towards 3-4X our per capita costs. That would be like 40% of current non-school revenues, which can only be solved by raising taxes and user fees significantly.
The suburbs are already seeing increasing need for social and welfare programming as poverty starts to rise in lots of places. Combined with infrastructure, it's going to amount to people having to pay for the privilege of living in less dense environs in a way which has never been the case in the US before now.
Plenty will choose to! The suburbs are rich. The country is rich! We can afford it.
But at the margins it will change the calculus for many people, which in turn will change the distribution of poverty within American metro areas, further changing the calculus, etc.
I can see much of this broadly, but I'm extremely doubtful that "maintenance thereof will converge towards 3-4X our per capita costs." I'd be interested in seeing numbers for older suburbs around Philly or other such cities who have lower densities.
Then again, maybe I'm overestimating what the current budgets when thinking that growth level is unlikely.
I just did the math with PennDOT data; the Collar Counties have 3X the roadway miles that Philadelphia does per capita, and from what I can gather the typical road width is substantially larger, so the differential in paved area is wider still, probably closer to 4X
PECO maintains around 2X the gas line length for a somewhat smaller customer base, compared to PGW.
The differential for potable water piping is around 3-4X, based on a scattering of suburban jurisdictions that publish data. The water authority where I grew up, which is a pretty representative swathe of the burbs including four denser old rail towns and the surrounding exurbs, serves 36,000 households and has 600 miles of pipe; PWD serves 700,000 households with 3100 miles of pipe. A casual check of other suburban water authorities is similar.
Given that electrical is shared across the region there's no particular reason to consider it here, but that differential should yawn much wider than any of the others given the universality of electrification compared to public water/sewer service, let alone natural gas distribution.
So it's probably not going to mechanistically converge on 3-4X, now that I'm digging in detail, rather more like 2-2.5X per capita costs.
Anyway, we're already starting to see those costs get baked in in many suburban regions. Aqua's entire business model is to buy suburban utilities with deferred maintenance that municipalities politically cannot afford and do the maintenance, then increase rates by the necessary amount plus a healthy profit margin (that's probably still lower than bond financing costs would have been for a small municipal water authority). People throw a fit but there's no other possible outcome.
Poverty has been steadily creeping up in the suburbs while flat or maybe declining in the city.
Hard to tell what the future will bring, but there's some cause to expect considerable convergence here between suburbs and their urban cores, which will be heavily amplified if racial depolarization trends both make state-level GOP organizations care about cities and increase the competitiveness of their politics and governance.
I think the variance depends on who ends up on the other side of the table. Some times you get the guy who suspects the taxpayer is cheating and takes personal offense at that and then goes at it with a gusto we don't normally associate with a government employee.
(Does the IRS have quotas?)
The individual worker certainly can make or break the experience. I think helpful people outnumber the bad ones but the bad ones can be REAL bad.
Self-employed person here who's interacted with the IRS several times, has owed them money before, etc. Everyone I dealt with there was professional & none of it was really that difficult.
>INSANE fees and interest every day it goes unpaid
When I owed them (for taxes that I simply hadn't paid- was totally my fault), I'm pretty sure the annual interest rate was 8%
They've paid me the interest they owed me without me needing to do anything.
When Matt and others say reduced IRS staffing will lead to reduced compliance and reduced income, then everyone on both sides internalizes the role of the IRS employees as increasing the revenue the government gets.
Many of them are just accounting nerds and they want to determine the true number each taxpayer owes and then correct the system to say that. My son had his return auto-corrected and given back a massive pile of money. (I can't keep his attention long enough to find out what happened but I think it was EITC and I don't know why TaxAct didn't catch this.)
I think the framing of "fewer employees -> less revenue" is bad for this reason. I'd suggest "fewer employees -> less accurate returns" instead.
I think this negative interaction you had with the IRS might have been in an earlier era (80's perhaps) when there was a far higher audit rate and the IRS had a more adversarial "in your face" approach to taxpayers. I've never been audited or even known someone in my personal life who was audited by the IRS since the beginning of the century.
I've worked at companies that were subjected to routine IRS audits, but they were few and only related to smaller business segments. A lot of them ended up with zero assessments.
I've also found most IRS employees I've talked to on the phone to be knowledgeable and reasonably intelligent. The stereotype of Federal employees perpetuated by conservatives that they are idiotic diversity hires just simply isn't consistent with my experience. I am a tax accountant specialzing in business taxes and I literally call the IRS all the time.
Now some states' government employees - that's a different story!
A friend’s dad is a billlionaire with a charitable foundation. Said friend is audited every year. Does not complain about it, and in fact has only nice things to say about the professionalism of the process.
I expect for billionaires the tax return is the start rather than the end of determining their tax bill. Auditors will show up and talk things over with your accountants regardless.
"The billionaire had a good experience with the auditors" rings the same as "the billionaire had a good experience with the police." Auditors aren't going to come in hot for the same reason a beat cop isn't going to come in hot when walking up to the billionaire's front door. It's someone who can fight back.
“it rings hollow to people to compare the IRS to a beat cop keeping the neighborhood safe because that’s not how they behave.”
Have you not come across the viewpoint that some people in some neighborhoods find that beat cops often wield power arbitrarily and punish those who attempt to assert their rights?
Beat cops in neighborhoods also make mistakes and are not exactly known for their willingness to back down if wrong, and the advice in interactions with them also generally amount to "just go along with it, it's not worth the effort." This is the nature of enforcement.
The problem with "abolish the police" is not that police do not occasionally make errors that are very bad for the targets of the errors, it's that one must perform a cost-benefit calculation on whether those errors are worse than the effects of fewer police on crime.
We should have the equivalent of public defenders, but for audits. However, I suspect "let's have more public defender types and spend the money required to do so" wouldn't be the most popular position in the GOP.
As a private citizen with complicated taxes I pay for audit insurance. It’s not crazy expensive.
I've never had to use it but I think it's like $50 bucks from turbotax or something.
Is it any good? I dunno. I know other forms of litigation insurance are quite good, so my prior is “yeah.”
The only time that I had to use my audit insurance, the insurer wouldn't cough up, so I had to take him to court. The audit insurance litigation wasn't cheap, and I hadn't budgeted for the expenses. Ever since then, I make sure to keep my audit insurance litigation insurance premiums paid up.
That sounds horrible and almost like a parody of why people hate the various insurance industries.
I pay for it and used it once so far. A simple letter audit and it worked out and saved me a lot of time. (The IRS doesn’t like IOLTA accounts — cause they show you receiving the funds while lawyers and their bars don’t count the money in the IOLTA account as theirs.)
The IRS has been understaffed for well over a decade. The staffing problems predated Biden.
Dubya and Trump-part 1 both defunded the IRS
I've owed the IRS money as a small business owner (over $50k) and they were very easy and pleasant to work with.
Overheard at the gun range in Sacramento: "I can't wait until Trump gets rid of the IRS and I don't have to pay income tax anymore."
An incredible "imagine a guy" moment. Of course, that's not the place to bring up politics but people really do believe this stuff.
Friends of mine say/post stuff like this all of the time and it really blows my mind. Like if you think through the implications of living in a country with no ability to collect taxes then you're likely living in a really poor and dysfunctional society. The ability to collect taxes is basically what separates the first world and third world and very few people would want to live in third world countries - but maybe they assume they'd be rich enough to not feel the difference.
The funniest would be if his household income is like $75k and he has no federal tax due as it is.
It's California and he can afford guns and ammo. Hard to know which side of the limit he's on. And also the question of whether he's already lying on his taxes and is hoping the IRS collapses before they catch him.
I said to a friend of mine a few months ago "I don't think there will be any taxes soon" and it's a good thing Thomas Friedman wasn't there to overheat it.
“There was this infamous moment in George W. Bush’s first term when Dick Cheney said, “Reagan proved deficits don’t matter.” And for most of the 21st century, they really haven’t. But that stopped being true during Joe Biden’s term, and it remains untrue today. If we cripple the government’s ability to collect taxes, it’s going to be a very real problem for the country. “
Hamstringing future Democratic administrations sounds like a feature, not a bug, to the GOP.
This...
"I think a reasonable person could argue that the US tradition of siloing information for privacy reasons goes too far and is counterproductive."
... is a very important point. Case in point: many states have tried to reveal the value of different college degrees by tracking graduates earnings, and the College Scorecard tries to do this at a national level. But the information is of limited value because the government is hampered by privacy laws from matching data in a really effective way. It would be nice to aggressively shut down degree mills that put people into a lot of debt without raising their earning power. But that can't be done, because privacy rules constrain data sharing in ways that make it impossible for policy makers to systematically determine which those are.
Making people trust the government less seems to make it likely that more information will get siloed.
The big irony is that the United States’ private sector (health care apart) is probably the least regulated in the western world.
People here trust private companies (to have their data lost in a privacy breach) much more than trust the government (to much less likely lose their data).
The government has a lot more power to hurt me using my data than the private sector does. Some exceptions might be mortgage lending and insurance coverage, but credit reporting and medical records are individually regulated. The stakes about which ads I’m shown are trivial by comparison.
While I mostly agree with the sentiment, I think this reflects an American-centric view of things, which goes to show why there is much less private sector privacy regulation than in Europe.
You’d have a much harder time convincing Europeans that private sector-held data has as little value as you say.
Hasn't Elon been scarfing all the information for his own use? Maybe we can get his database.
Just ask Grok to reveal it.
The tension between privacy and information for research is healthy, but of course requires vigilance and management.
MY gets at this a little, but the most pernicious thing about defunding the tax police is how it reduces trust in society. You feel like more and more a sucker for following the rules. It begets FOMO for cheating on your taxes.
Like most other things about MAGA, it pushes us away from being a high-trust society and closer to a banana republic.
I’d love to get back to a place where things like this felt like they mattered at all.
I don’t know how to escape this place where like everything feels like maximum level anxiety all the time.
"...the Republican Party has developed a perverse affection for rich tax cheats ...."
Don't make a perversion of amour propre.
The election of Trump 1.0 Feels like such a fundamentally low interest rate phenomenon. The public was only able to care about the issues he brought to bare because we were mostly out of blocking and tackling white knuckle fiscal politics. The economy was still under stimulated but there was no juice for additional stimulus from Obama and GOP Congress. So we can focus on walls and scandal etc. Compare the 2016 debate to the famed 1992 debate and how focused *voters* were on the macro economy! Trump comes in, passes a largely regressive, albeit stimulative, tax cut, gives the economy the last bit of juice it needs and we are off to the races. 2018-2019 was legitimately the best economy most voters had experienced since the 1990s.
Covid, Inflation, Rates hikes, yadda yadda. The world changes. The free money days are over. Trump wins for a myriad of reasons but at least partially on a belief he can Make America 2019 Again. But the directionality is now misaligned and money is no longer free.
I feel so Josh Barro pilled on this but Interest Rates are the most important political factor that hard core politicos don't adequately account for. https://www.joshbarro.com/p/when-will-interest-rates-make-voters
ZIRP plus zero marginal cost businesses like Facebook created a lot of dumb billionaires who think government can be reduced to a bunch of AWS web services plus ChatGPT.
In the past at least you had to do it for 30 years and manage a lot of relationships. Steve Wynn is a shithead but he got there by building giant casinos and running them over a long period of time.
A Matt Yglesias Alternative History(tm): Steve Wynn runs for and wins the White House in 2016 instead of Trump.
Also it was genuinely an open question as to whether voters care more about inflation or unemployment, and now that question has I think been definitively answered (both by the election and by Stantcheva)
I'm glad it has been empirically proven but it also seems so obvious. Even in high unemployment, 10% lets say, 90% of working people have jobs! and not all 10% unemployed will be sympathetic in the eyes of the 90%. But 100% of people pay higher prices.
I'm not sure this logic is so obvious. Leave aside the fact that there are widening circles of unemployment (people you love get fired, your fear of also being fired increases). Perhaps why inflation had such a powerful effect on people was that they had little or no prior experience with it; it was a new and very bad thing. Unemployment was also bad, but they had more recent experience with it (the GFC, COVID).
New bad things tend to be scarier than those we have experience with, even if the latter are also bad.
High unemployment also corresponds with a bad economy. Maybe I can't sell any more goods because my customers don't have enough jobs.
I think voters will vote against any bad thing that happened.
Yeah, I've seen this point and it doesn't make sense to me. Sure, you might have a job, but people notice when they go years without a pay raise and can't job hop.
Matt leaves out possibly an even bigger part of tax complexity and need for tax police, defining "income." It is tricky because there are good reasons to tax some kinds of cash inflows differently from others -- dividends and capital gains being the most obvious.
That is one reason, although not the main one, that we ought to be taxing "consumption" progressively instead of "income."
Ah, maybe these Trump 2.0 executive actions could be seen as overly complex, yet expedient way of introducing a highly variable, national sales tax.
That would take a lot of astigmatism. :)
a) The tariffs are not levied only on consumption goods.
b) A proper single rate national sales tax on consumer goods/VAT would be preferable to the wage tax for SS/Medicare/unemployment insurance, but not for replacing corporate and individual “Income” taxes as it is not progressive in the amount consumed.
Crippling the IRS's enforcement ability will increase the deficit in spite of the cuts that are being made. Once again, we see that Republicans don't actually care about the deficit and only care about lowering taxes as much as possible, particularly for the rich. We need politicians to take the budget deficit seriously; as Matt said, increasing the deficit will lead to an increase in either inflation or interest rates, which will have a real impact on ordinary Americans
Isn't it interesting how the deficit has gone up as tax cuts (and cheap money and defunding the IRS) have been de rigueur for the last 25 years. "They" have won, the debt is now unpayable, $350,000 per working taxpayer.
Except revenue as a percentage of GDP has actually stayed in a pretty narrow band for decades despite marginal tax rates changing a LOT (mainly going down)
https://taxfoundation.org/research/all/federal/short-history-government-taxing-and-spending-united-states/
It's great to get coverage of some underreported topics. That said, this seems a bit speculative. I think lax enforcement will take a while to filter through to behavior, and the pace of the Trump administration's race to either tyranny or velvet Revolution seems fast enough that this is unlikely to matter.
That said, I wonder how people 's reduced trust in the government might alter tax compliance. This year I was thinking, "Am I sharing this information with Elon Musk?"
Credible sources like the Yale Budget lab are already assuming this will significantly hurt our deficit, potentially $637 billion over a ten year budget window.
Well, if crippling the tax police really does significantly undercut revenue, that's yet another contributing factor to what might quickly turn into a fiscal crisis.
Other factors are:
- Dedollarization, which will make it harder to borrow or roll over debt;
- Ruinous tariffs which will slow the economy;
- Likely big tax cuts.
I'm actually not too apocalyptic about the impact of a fiscal crisis. Shock therapy has often worked pretty well over a 10-year horizon or so. Under this political leadership, prospects are much dimmer, but then, a Great Depression might put an end to this political leadership pretty quickly, if Republicans wake up or Democrats win control of Congress in 2026.
But I sure don't want to settle for the silver linings around that cloud! If investors stop buying Treasury debt, that will be a bad day.
I'm worried!
"I think lax enforcement will take a while to filter through to behavior"
In Philadelphia, at least, it didn't take very long at all between when the police stopped enforcing traffic laws and people began running red lights boldly and frequently -- to the point where it became common to see cars driving around those that did stop to run the red light in the wrong lane against oncoming traffic.
Finding out Romney paid an effective rate of 13% and Trump paid no taxes most years was not good for voluntary compliance. A busy plumber pays twice Romney’s rate plus lots of payroll tax.
I was a landscape contractor, as a sole proprietor we also pay both halves of our Social Security (most people get the employer to pay half). Granted, there are deductions that can help defray that a bit but tax time was usually drought with the unknown, lol.
Dude, this is the whole point of setting up an S corporation for small business folks like you & I. You're required to pay yourself a very minimal salary, and you pay the 'two halves of Social Security' on that salary amount. Then the rest of your compensation is taken in 'distributions', and you pay *neither half of SS taxes on the distributions*. Ask an accountant, they'll explain it better than me. But an S Corp is way tax-advantaged over an LLC
I looked into that, with my setup it was a wash, but yes excellent point.
if i pay more in to social security, i get more out when i retire
If I take that same amount of money and put it into index funds, I get a hell of a lot more out when I retire
i stubbornly believe the stock market is over valued
This trails off dramatically! SS gives a substantial boost to "low income' workers at the expense of people's benefit scaling slowly compared to their contributions.
Do you have a paid accountant or at least a recurring vendor like Mint, TurboTax, and numerous other personal, professional, business software? If so, they may already be making suggestions for estimated taxes and considerations around ordinary income vs. capitalized income. Same for expenses, ie. conta revenue. Many professionals can easily deduct substantial expenses, including financial services, without incorporating.
Even maximizing compliance out of a moral duty, fear of audit, or just laziness can cause complications. Ie, how the SALT cap changed CA tech workers withholding as well as adjusting withholding for sales of stock based comp. Eg, In theory, and recent federal instructions, gifting vested stock to a charity is beneficial to all parties, including simplicity for the IRS.
Moreover, I myself, and several people that I know, have constructed assets at the IRS in the form of Alternative Minimal Tax credits and Capital Loss credits. Better than being audited, but it does complicate financial planning, including future estimated taxes. Moreover, it sucks to spend 3 hours on hold just to verify an address at the top of a PDF of a prior filling to claim a small refund electronically. Even weirder is a low 4 figure check from the US treasurery with no explanation.
And then there's the criticality in using "return to sender" on all financial mail for other people as well as thoughtful use of USPS forwarding services. Sometimes that garbage even comes back in original form, ie. with the return to sender label, indicating this is the last known address for someone and I need to shred or toss the documents. But at least then the financial system, including the IRS, appreciates the destruction of an id for a legal person.
I'm certainly withholding less... First of all who knows if I will have a job. But if it turns out that the IRS is a complete shitshow or they just cut taxes to morning anyway then I'm not gonna count on getting a proper refund. I'd rather potentially owe and make them wait for it
I think most white-collar Americans deeply underappreciate how much tax fraud and crime (as described by Mr. Scrupulous here) goes on in this country. I grew up around blue collar workers primarily in the construction and farm industries where many people were operating as businesses for tax purposes.
The irony to me is that the people who complain the most about taxes are the ones paying the least. It also muddies the waters deeply on "income". Sure a white collar workers' $150k salary might seem extremely high to somebody making $100k in 1099 revenue, but at the end of the day, the take-home could be the same or lower after massive parts of the 1099 earners' lifestyle are subtracted from that revenue number. Take enough 'losses' or 'expenses' and all of the sudden you qualify for all kinds of government subsides too. It's just massively criminal.
edit: I’ll add this is not just blue collar industries either. I know doctors working for groups and CRNAs doing the same thing.
I once worked for a company that had hundreds of 1099 sales agents across the country selling its products. We looked into converting them into W2s and the vast majority of them were extremely allergic to it despite getting benefits they otherwise weren't getting - because they'd no longer be able to write off expenses in the same way.