STUMP » Articles » Taxing Tuesday: BIGGER GOVERNMENT!!! » 28 May 2019, 06:16

Where Stu & MP spout off about everything.

Taxing Tuesday: BIGGER GOVERNMENT!!!  

by

28 May 2019, 06:16

With all the socialism talk from the Democratic hopefuls for the Presidency, one of the requirements is not only higher taxes, but a bigger government to implement all these lovely plans.

WaPo: To make her wealth tax work, Elizabeth Warren must revive the IRS

If you’ve followed Sen. Elizabeth Warren’s (D-Mass.) presidential campaign, you know she has a series of ambitious plans, many of which involve substantial government spending. Since she’s a Democrat, she has to say where she’ll get the money (an obligation that, for some reason, Republicans are relieved of), and she claims that she’ll do it largely via a wealth tax.

In her plan, assets over $50 million would be taxed at 2 percent per year, and assets over $1 billion would be taxed at 3 percent. She calculates it would raise $275 billion a year, which could be used for all kinds of wonderful things such as universal pre-K, eliminating college debt and boosting affordable housing.

…..
There is no doubt that rich people will try to avoid a wealth tax because, as a group, the rich are more likely to be selfish and immoral than the rest of us. They also tend to think that there’s something fundamentally unfair about the very idea of paying into the system that makes their wealth possible.

via GIPHY

So yes, wealthy people have the means, motive and opportunity to avoid paying a wealth tax. So what should we do about it?

Warren says that she wants to beef up Internal revenue Service enforcement to make cheating more difficult. But there’s no doubt that it’s a real problem, particularly since hiding wealth can be easier than hiding income. Even some liberal economists have warned that cheating would be rampant if a wealth tax was in place.

That leaves you with a few options. You can scrap it and try something else; you can just accept that there will be lots of cheating, but use a wealth tax anyway to get whatever revenue you can; or you can put it in place and massively increase enforcement. Like, massively — by hiring thousands of new IRS agents, giving them the resources they need, and imposing serious penalties for those who cheat. Start sending billionaires to San Quentin and the rest of them might decide it isn’t worth the risk.

Unfortunately, in recent years, we’ve been moving in the other direction. As ProPublica has documented, Republicans have waged a highly successful war on the IRS budget that has yielded results, including letting tax cheats off the hook and leaving billions of dollars in lost revenue every year:

“As of last year, the IRS had 9,510 auditors. That’s down a third from 2010. The last time the IRS had fewer than 10,000 revenue agents was 1953, when the economy was a seventh of its current size. And the IRS is still shrinking. Almost a third of its remaining employees will be eligible to retire in the next year, and with morale plummeting, many of them will.

“The IRS conducted 675,000 fewer audits in 2017 than it did in 2010, a drop in the audit rate of 42 percent. But even those stark numbers don’t tell the whole story, say current and former IRS employees: Auditors are stretched thin, and they’re often forced to limit their investigations and move on to the next audit as quickly as they can.”

Which means that a huge increase in funding for the IRS will be necessary if we’re going to have a fair tax system. Because a fair system is one not only where people are asked to pay their fair share, but where it’s difficult for them to just decide they won’t.

I don’t blame Warren for not focusing too much on this aspect of the problem; it’s not like “We have to double funding for the IRS!” is the kind of line that gets people jumping out of their chairs and cheering. But if she’s going to make a wealth tax work, something like that will be necessary. In fact, it’s what we ought to do even if the tax code stays just as it is.

There is more of a problem than this author thinks, as they really can’t pay effective regulators enough to compete with the people the rich people will hire to ensure a completely legal reduction in their taxes. Yes, some illegality occurs out there, but I do wonder how many audits of extremely rich people end up with tax fraud or evasion indictments.

I think you’ll find that the richer hunting grounds (in terms of fraud found, but not necessarily tax recouped) in very low-income tax returns. There is a reason EITC returns have the highest audit rate… because it has a high fraud rate. Oh, I’m sorry, I shouldn’t call that a fraud rate apparently. Merely overpayments… because people file the returns improperly, as it’s complicated.

This piece doesn’t talk about the EITC, but supposedly the government not getting all the taxes owed due to the complexity of the taxation system. (Of course, it could be people are overpaying and not getting full refunds due to complexity… but the IRS is not concerned about that.)

No problem – why don’t we make everything less complicated, then? Then the audits can focus on fraud and not on people filling out complicated forms incorrectly inadvertently.

(Note: a wealth tax does not make things more simple.)

THE DIFFICULTY IN BEATING THE PRIVATE MARKET

But back to one of the big problems with thinking a bigger set of IRS employees will finally make the rich folks pay up.

The IRS can’t compete for talent. Not on pay, at any rate.

One of the best books on this is Markopolos’s No One Would Listen, which I think is a fantastic book. Anybody with dreams of a great regulatory state should read this.

I wrote about Markopolos before:

By the way, there’s a familiar name popping up in this report: Harry Markopolos, who literally wrote the book on Bernie Madoff red flags, and he definitely knows what he’s talking about. I highly recommend the book, but mainly the appendices that show Markopolos’s reports to the SEC… the reports that were spot-on and were ignored because the SEC people are lawyers, not finance people.

Now, there’s a reason that the SEC is stuffed with lawyers (and yes, there are lawyers in finance who understand finance), and there’s a reason the regulatory state is stuffed with lawyers. But the thing is, there are people who know much better how all the fiddly rules work because their job is to adhere to them to the letter and make sure the people who pay them lots of money get an optimized result, legally.

In any case, it’s fairly easy to outbid the government in terms of not only pay but also location, benefits, etc. for this sort of job.

Some people go into the regulatory state for a short stint so that they can get more lucrative jobs in the private sector. And you might want to read up on regulatory capture.

I happen to know all sorts of stuff about this thing…. that I get paid to write about, so no more from me.

My point is that a better bet is to implement something like a Value-Added Tax, scrap corporate income taxes, make any income tax a flat tax, and have done with it.

TAX STORIES

On that last one — Illinoisians, if you are foolish enough to vote for graduated tax levels without getting a constitutional amendment that at least lets you cut COLAs on pensions… you deserve everything that’s coming to you.

Enjoy.

TAX TWEETS





(that’s the Philippines)


I should hope they’re not slapdash about it.






If only people would remember that last bit….


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