The IRS Can Become Something So Much Greater – Blue
As the popular phrase goes: “Two things are certain in life, death and taxes.” While there is truth to the death part, as for the part about taxes, not so much. The upper class has consistently taken advantage of inadequacies in our tax rules and laws, otherwise known as tax loopholes, where they can get out of paying the amount of money they should be paying. There are many instances in which tax loopholes are used to avoid paying the proper amount of taxes, while everyone else continues to pay their designated rates. Because it is usually the wealthy who take advantage, the middle and lower classes feel the pinch.
Tax deductions are how individuals and businesses avoid paying a tax. A deduction is money taken off of your tax bill because you or your actions have met certain criteria. Deductions are a good thing for two reasons. First, it helps people who are struggling to make ends meet. If you are in a lower income bracket and meet some qualifications such as having kids, a specific type of job, or something of that nature, a tax deduction would leave more money in your pocket and could be the difference between bankruptcy and paying the bills. Second, it stimulates the economy. The more money you keep from taxes, the more money that you would spend. When consumers spend money, it is a good thing for American businesses, as more revenue means more growth. While this sounds great, there are deductions that are taken advantage of by the wealthy to get abundant tax breaks, making them into a loophole. What is the line we draw between deductions and loopholes? Tax deductions help a lot of people, but when they are taken advantage of, they have the ability to hurt a lot of people. A deduction is typically paired with another law, which creates a scenario where someone is able to abuse a deduction and turn it into a loophole. The government still needs a certain amount of money to maintain the country’s budgets, but what happens when billions of dollars of revenue is lost due to the tax loopholes? The answer is that someone else, or the average citizen, will make up the difference.
The article “AU Advises Internal Revenue Service To Close Voucher Funding Loophole In Tax Code” goes into a very deep description about one instance of a deductible turning into a loophole. This specific law, valid in some states, is an excellent example of a detrimental deduction that has transformed into a loophole with negative consequences. In this situation, a wealthy donor can donate to schools and receive the money back in tax returns. Let’s say, for example, a wealthy individual donates 1 million dollars to a private school district. In some places in the United States, you would receive massive percentages of that money back from your deductible. A lot of places give back one hundred percent of the money you donated. This specific deductible falls under the “Social Policy Deduction,” which is money that is given back in return for donating to better cultural, educational, religious, or welfare organizations or activities. This is also seen as a “charitable donation.” According to another rule, after our wealthy individual receives his 1 million dollars back, he will also receive a percentage of the 1 million back as an Economic Policy deduction. What this means is, our charitable wealthy individual has received his 1 million dollars back, and received (let’s say a 30 percent deductible for this scenario) on top of the 1 million he already saw returned, and took 300 thousand additional dollars off of his taxes as profit, for completely free. This may not seem like such a terrible thing on the surface, but for the local community, it absolutely is.
The government takes taxes from everyone else in the area to fund public schools, public parks, homeless shelters, and other public services. It collects a finite amount of money, and there is not an unlimited amount waiting to be used. If the government gives one point three million dollars back to this very rich investor, let us consider where that money comes from and ends up. The money returned back to the investor was originally collected as taxpayer revenue, from the rest of the community. Upon giving 1.3 million back to the donor, that is 1.3 million that cannot be spent on public works projects. 1 million is already tied up making the wealthy’s rich private school even wealthier, siphoning revenue that should be going somewhere such as the already severely underfunded public school system. That three hundred thousand dollar gift could also be spent on people who desperately need it, but is used as a catalyst to make the rich richer and the poor poorer. The real issue here is that the IRS is completely aware of this situation, and has done nothing about it. They are completely underfunded and do not have the resources to respond to this situation.
To recap, at some point, a tax deductible, designed to stimulate the economy and strengthen the bank accounts of our citizens, becomes a loophole that does the exact opposite of its original purpose. Through Congress, as stated by “Tax Loopholes, a Procedural Proposal,” is the only way that we can get deductions completely eliminated. There always seems to be a cry out in Congressional meetings that tax loopholes must be closed. However, they all end with the same result: absolutely nothing happens. Congress still views deductions as necessary with complete validity. However, they choose to simply ignore the greater issue at hand, of the wealthy taking advantage of these circumstances. Congress is very likely influenced by the wealthy and has definitely contributed to the issue themselves. If Congress is going to be little help, who else can we, the people, turn to? The people need an organized group that can lead us towards some kind of solution. This solution is the Internal Revenue Service. The IRS is the only major body of government that is capable and will actually attempt to attack tax loopholes, or apply pressure for some sort of legislative change. The issue is that they are severely underfunded and lack the resources to do so. Increasing the resources of the IRS is the most likely option to lead to a solution and is attainable.
Around 49 billion is lost to the wealthy’s finesse annually. (That’s enough money to stave off world hunger for a little more than 7 years.) Public works projects and public services like police departments and public school systems, however, are what take the hit. They are left without the funding that they could have. Change might be attainable if the people came together in protest of what is happening, but the fact of the matter is that the general public is disinterested at best in this topic. The best chance for progress to be made is through the government agency created for this exact purpose, the Internal Revenue Service. The IRS is currently unable to respond to the abuse of tax loopholes by placing any significant pressure on Congress or the underreporting of income due to low funding and manpower. Increased funding for the IRS would give the agency more of a basis to react to these issues, subsequently moving the wealthy’s one-sided balance of who pays the most taxes back towards the middle. A change must be made in the agency’s budget in order to give it the ability to correct the wrongs in taxation that occur every year. More resources must be allocated to the IRS’s Criminal Justice department, or even create a new department dedicated specifically to this issue at hand.
A solution to the issue of the taxation imbalance problem, where the wealthy pay significantly less tax than other economic groups, is necessary. While other methods have been discussed, the most sensible option is allocating more funds to the IRS. This organization is built specifically for this purpose and is capable of obtaining funds that have been hidden away and unreported. Funding the IRS would increase the government’s income and balance out the disproportionalities between the wealthy and middle class. Because the IRS is not properly funded, billions of dollars in tax revenue are lost, which is a substantial amount that would shift the balance heavily. The average American only stands to benefit from this solution.
According to “Senators Press Yellen to Boost IRS Funding” by Melanie Waddell, If 80 billion was invested into the IRS, it would raise 2.3 trillion extra funds over the next two decades, primarily from better enforcement of taxation on wealthy taxpayers and large corporations according to the US Treasury. Increased funding for the IRS was a part of Joe Biden’s Build Back Better Act that has not seen any success in Congress. The difficulty of getting more funds allocated to the IRS with congressional approval is quite a monumental task. Many Congressmen and congresswomen are lobbied by the wealthy or have a lot of wealthy friends, or maybe are wealthy themselves. If funding the IRS means that their friends or even themselves are going to lose their money, they would never pass any act such as the Build Back Better act. After all, Congress is responsible for our rule of law, why would they use their power to weaken themselves?
While it is true that nobody wants to fill out their forms come tax time, the IRS is a valuable resource to the public. Filling out your forms is a somewhat arduous process. Many would call the IRS to assist with any difficulties in filing their taxes but have recently been met with voice answering machines. There have also been, frustratingly, many delays in receiving tax returns. As noted in “Senators Press Yellen to Boost IRS Funding” by Melanie Waddell, IRS staffing has decreased by 22 percent, and the number of tax filers has increased by 14 percent. Only 1 in 9 calls to the IRS are ever answered. If an agency cannot handle its own basic functions, it is not in the right condition to attempt to tackle the 1 percent’s vice grip on the tax code. The IRS is completely aware of what is occurring but lacks the resources to respond.
The article “Eliminating Tax Loopholes That Benefit Corporations And Wealthy Individuals” goes into detail about the history found behind the race to pay fewer taxes between the extremely wealthy and the middle class. As it seems, the middle class is much less interested in taxes than the wealthy. Presumably because the wealthy have a lot more to gain from using tax loopholes and a lot more accessible methods, they take advantage much more. With wealth comes power and influence. The upper class is able to influence government policies and such for their gain, leading to everyone else footing the bill. Other factors have also skewed this “race” in the wealthy’s favor, such as the weakening of workers’ unions. The solution is to turn to the IRS, which could be the answer to stop the wealthy from using tax loopholes. If more revenue is in play from the rich, the pinch would be significantly less for the middle class.
An attempt of the middle and lower class to stop this is very necessary, but because of the complete lack of interest in the topic, however, very little is being done at the moment. Wealthy people have much more to gain from the use of tax loopholes, and they have the power and influence to sway lawmakers into passing legislation that benefits their agenda. With our many voices and a collective effort, we can begin a change for the better. The IRS can work to improve this situation given the proper amount of resources, and we must do what we can to see that that happens.
The average citizen may ask “Why should I advocate for funding the agency that takes my money? If I do this, with their increased budget, they will find more ways to tax me.” Contrary to popular belief, the IRS is not the enemy. A large majority of the population views the IRS as the evil government agency that rips their hard-earned cash away from them. While it is true that it is depressing to see all of that money taken away on your pay stub, the government needs funding in order to maintain every single community in the country. Our tax dollars go to all public services, including schools, police, hospitals, the military, and many more. All of these important aspects of society would not be possible without the income that taxes generate. The money that is lost is given back to the public through all of these services.
The unfortunate truth is that the average taxpayer is being taken advantage of. Not by the IRS, however. The people that are taking advantage are the people who take advantage of tax loopholes and other ways of getting out of paying taxes, such as offshore accounts, as an example. In August 2020, The Taxpayer Advocate released a report with substantial data. According to the information provided, each household in the US is paying an additional $3,300 dollars on average in order to fill the void left by noncompliance in the country. That is enough money for a down payment on a car or that vacation on TV. If the money held by the wealthy through the use of loopholes was collected as it should, every single family would have a very substantial amount of money left in their pockets.
An estimated 46 billion dollars is lost every single year due to underreporting or no reporting of taxes by the 897 thousand wealthiest Americans. The wealthy have a vast pool of resources in cash, lawyers, accountants, and other options to help them game the system. These resources make the IRS’s job extremely difficult and complex. On top of this, due to the lack of funding available, the IRS has had to cut its available resources like employees and technology down quite a bit. There is a major effect that occurs based on these factors. The remaining employees are forced to focus more on people with lower income tax brackets, who do not have access to these extreme benefits because it is less of a hassle. From 2010 to 2015, because of the steady lowering of funding, audits of shady people making more than $1 million dollars dropped 72 percent, and audits of shady big businesses worth more than $20 billion dropped by 34 percent. This means that the average person will face more scrutiny, and the wealthy get away scot-free. When the remaining IRS employees focused on individuals with an income above 5 million, however, they obtained on average around $4500 dollars for the government per hour they spent. This is a goldmine of uncollected revenue that requires employees, technology, and funding to obtain. If the wealthy are scrutinized properly, then there will be more focus on the rich and less income coming out of the average individual’s pockets.
The tax gap, an important reference, is a measurement of how much money is expected to be collected by the IRS, versus how much is actually collected. Annually, around 220 billion dollars are lost due to people cheating or not reporting their taxes. That is enough money to keep the entire US military functioning for months. If the IRS’s budget is raised, the government might see a lot more of that money and be much less incentivized to tax the average citizen so much. This is an issue because, over the past two decades, Congress has been at war with the IRS. There have been multiple instances where Congress has voted to reduce the IRS’s budget because our leaders are inherently wealthy. Increasing the IRS’s budget would only be detrimental to their bank accounts. It is a no-brainer for them to keep the middle and lower class footing the bill.
As mentioned previously, another major issue within the IRS also stems from understaffing and outdated technology. The last thing many want when they call the IRS is a 20-minute wait time, but that is the current unfortunate reality. Their mailroom is also filled to the brim with unread letters. They do not have the funding to pay the proper amount of staff in order to maintain their day-to-day functions. A significant issue arose during the Covid 19 pandemic while people were attempting to claim their stimulus checks. The government had set up a website for people to claim what they were owed, but the website was poorly run and had a lot of errors. Many people did not receive their stimulus checks for months, and some did not get the $500 dollars per child that they were supposed to receive. Then, they were forced to call or write a letter to the agency and pray that their tickets were attended to. The IRS should not be so shoddily constructed. It should be an ally to the people, especially in a great time of need like the pandemic was. Increased funding for the agency would take a major change in its effectiveness in assisting the general public.
The middle and lower classes only stand to benefit from increased funding from the IRS. The common misconception that the IRS only wants to make a profit off of you is not true. They are responsible for the very funding of our communities and are a valuable tool that should be quick, effective, and seamless in their responses that only benefit the people, who deserve nothing but the best. This starts by allocating more resources so that they can become organized and effective in their endeavors. With the citizens of the country behind them and the proper resources, they can become an effective tool for the people.
-, M. R., -, Mousumi Royhttps://www.valuewalk.com/Mousumi Roy is an author, Roy, M., & author, M. R. is an. (2020, September 30). Eliminating tax loopholes that benefit corporations and wealthy individuals. ValueWalk. Retrieved April 27, 2022, from https://www.valuewalk.com/2020/09/threat-of-taxation/
Edelberg, W., Lee, E., Estep, S., & Bober, M. (2022, March 9). Tax reforms to raise revenue efficiently and equitably. Brookings. Retrieved April 27, 2022, from https://www.brookings.edu/blog/up-front/2021/04/28/tax-reforms-to-raise-revenue-efficiently-and-equitably/
Au advises IRS to close voucher funding loophole in Tax Code. Americans United. (n.d.). Retrieved April 27, 2022, from https://www.au.org/the-latest/church-and-state/articles/au-advises-irs-to-close-voucher-funding/
Waddell, M. (2022, January 27). Senators press yellen to boost IRS funding. ThinkAdvisor. Retrieved April 27, 2022, from https://www.thinkadvisor.com/2022/01/27/senators-press-yellen-to-boost-irs-funding/
Yarmuth, J. (2020, October 1). The Congressional Budget Process: A Brief Overview. Retrieved April 27, 2022, from https://budget.house.gov/sites/democrats.budget.house.gov/files/documents/crs%20budget%20overview.pdf
Mckenna, J. (1963). Tax loopholes: A procedural proposal – JSTOR. Jstor. Retrieved April 27, 2022, from https://www.jstor.org/stable/41791049
Responsible officials definition of problem. taxpayer advocate. (n.d.). Retrieved April 27, 2022, from https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020/08/Most-Serious-Problems-The-Preservation-of-Fundamental-Taxpayer-Rights-Is-Critical-as-the-IRS-Develops-a-Real-Time-Tax-System.pdf
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