Guerilla class warfare: IRS audits fewer rich, more poor people

Channeling the spirit of my man David Cay Johnston, I'm gonna tell you why this mundane story matters.

See, Republicans in Congress cynically under-fund the IRS year in, year out. So an undermanned, undertrained IRS makes do and does what comes easier, relatively -- auditing people with lower incomes. Because higher-income filers have lawyers and complicated returns and it requires more manpower to check them.  

What this works out to, in reality, is a calculated game of probability by rich filers: if you're wealthy, and you're lawyered up, chances are you'll come away unaudited; and even if you are audited, you'll come away unscathed.  

And so wealth inequality is a double-whammy for the poor and working class: earning so much less, they are still more likely to be audited. 

BECAUSE THAT'S THE WAY THE GOP WANTS IT.  Don't be naive and believe otherwise.

Finally, do I really have to explain how this makes no business sense?  As every auditor knows, you focus your attention on the weakest control points with the highest potential for losses. The potential for losses among poor filers is minimal, almost nil.  

All the Tea Partyers who are serious about fiscal health should cheer on  the IRS, because every dollar spent on the IRS  brings in $255 to the U.S. Treasury. Just by enforcing existing tax laws passed by Congress, nothing more. No other government agency can boast of such efficiency!  And so it's time for the TPs to put up or shut up about the IRS, the only government agency that reduces the federal deficit.

U.S. IRS audited fewer wealthy Americans in 2013

By  Patrick Temple-West

March 21, 2014 | Reuters

The U.S. Internal Revenue Service said on Friday that it audited fewer high-income Americans in 2013 than it did in 2012 or 2011, while it conducted more audits of people with no income.

Total audits fell by 5 percent from 2012 to reach the lowest level since 2008 as the IRS said it coped with budget cuts.

For the fiscal year that ended September 30, 2013, the IRS said it audited 24.2 percent of individual tax returns with adjusted gross income of $10 million or more. That was down from 27 percent in 2012 and 30 percent in 2011.

There were also fewer individual tax returns audited in the $5 million to $10 million gross income band, the IRS said.

In total, the IRS audited about 1.4 million individual returns. IRS Commissioner John Koskinen said in a statement that budget cuts at the agency have "presented challenges."

Wealthy Americans historically are the likeliest to be audited. The IRS a few years ago started a "Global High Wealth Industry Group" to audit high-wealth individuals more efficiently.

But Congress in January cut the IRS's fiscal 2014 budget by about 4 percent to $11.3 billion.

The funding cuts have forced the IRS to cut the number of customer service representatives it employs during tax season, Colleen Kelley, president of the National Treasury Employees Union said in a statement. "Both taxpayers and employees are frustrated."

Last year, audits were done on 6 percent of individual tax returns reporting no gross income, up from 2.7 percent in 2012 and 3.4 percent in 2011.

Fund the IRS to reduce the deficit

This story will drive my dear Republican friends crazy because it's true:

The Internal Revenue Service’s limited, focused exams of federal tax filings—known as correspondence exams—can yield a $7 return for every dollar spent, the Government Accountability Office found in a December report. Even more complex face-to-face investigations yielded a return of $1.8 for every dollar spent.

My man David Cay Johnston mentioned similar stats in his well-researched books Perfectly Legal and Free Lunch and in his articles on tax policy. Recently, Johnston cited a report by Citizens for Tax Justice that found that, [emphasis mine]:

Every dollar invested in the IRS’s enforcement, modernization and management system reduces the federal budget deficit by $200. Here’s another metric. Every dollar the IRS “spends for audits, liens and seizing property from tax cheats” garners ten dollars back.

And as WaPo describes, Mississippi, one of our 50 "laboratories of democracy," increased its spending on tax collection at the state level and got an even better return: $23 for every dollar spent on tax collection!

So why isn't the Grand Old Tea Party demanding that the IRS and every state do the same, to shore up our deficits and restore our fiscal health? Could it be they don't really care about budget deficits at all, only lowering taxes for themselves?.... 

How Mississippi turned $3.5 million into $80 million

By Niraj Chokshi

September 5, 2013 | Washington Post

URL: http://wapo.st/1aaf3vu

Silver: Repugs NOT singled out for IRS audits

Silver's sober little analysis tickled my mental "Like" icon.  First, because it's a good lesson on how to be a critical consumer of news and information. Silver reminds us of the statistical principle that "a handful of anecdotal data points are not worth very much in a country of more than 300 million people."  That's too bad for many Republicans, whose political views are shaped by handpicked anecdotes.

Second, because it shows Republicans' criticisms of the "evil" IRS are usually baseless and stupid.

Statistics guru Nate Silver, (the political analyst who predicted with perfect precision how Obama would win the 2012 election), estimates that about 380,000 of Mitt Romney’s voters were audited last year vs. 480,000 of President Obama’s voters.  

Too bad Rush Limbaugh didn't see that before his Friday show when he agreed with a paranoid caller: 

This IRS thing, what's the message? The government's after us.  Conservatives have been put on notice here.  You think this is gonna stop?  This isn't going to stop.  They're just going to find new ways to do this.

And like David Cay Johnston, Silver reminds us that "one-third of [IRS] audits pertained to people who claimed the Earned Income Tax Credit, a benefit for low-income taxpayers."  Why?  Because it's easy for the IRS to check up on.  Auditing rich people and corporations is too hard.

The truth is, IRS employees are overworked and underpaid, and their agency is chronically underfunded because of far-right Republicans who equate tax collecting, no matter professionally done, with theft.  Then they turn around and moan about the deficit.

New Audit Allegations Show Flawed Statistical Thinking

By Nate Silver

May 17, 2013 | New York Times

URL: http://mobile.nytimes.com/blogs/fivethirtyeight/2013/05/17/new-audit-allegations-show-flawed-statistical-thinking/