Americans should fear the IRS again

The Inflation Reduction Act, which was passed by the Senate on Sunday and should pass the House on Friday, has $80B in new funding for the Internal Revenue Service (IRS).

A lot of that money is going to modernize its woefully underfunded infrastructure, which is still stuck in the 1960s. If you need any convincing that, yes, it’s really that bad, the Washington Post has a must read story that documents how your return is actually processed, at least if you submit a paper return or mail in a check. Once you see it, you’ll wonder why it takes only months for them to process it.

For decades, the IRS has been woefully, systematically, and deliberately underfunded. In addition, it’s been given lots of new tasks, like responsibility for sending out stimulus checks. The root of the problem goes back to Ronald Reagan’s presidency. Reagan declared, essentially, that government is evil. He and most of his Republican successors have made a point of putting his words into action by continually making it harder for the IRS to function.

The result should have been a scandal, if our federal legislature actually cared about a functioning government. The IRS is nearly alone among government agencies in generating revenue. Its inability to have funding to do its job has probably cost the government trillions of dollars in uncollected tax revenues, bloating deficits and increasingly allowing almost anyone to get away with tax fraud.

The chances that your tax return will get audited is .3%. So there’s a 1 in 333 chance that your return will be audited. But if your return is pretty standard with your income and deductions within an ordinary range, your chances are virtually nonexistent. I’ve been paying income taxes for probably forty five years and it’s never happened to me. The closest I came was when I incorrectly missed reporting some capital gains, and the IRS computers spotted it. I paid the tax and a small penalty.

Every year there are fewer tax specialists available to audit tax returns. That’s because they are largely retired. With flat or reduced funding, hiring freezes and inadequate pay, tax auditors are hard to replace. This new act means to address this issue. But it won’t happen overnight.

I am hoping that Americans start to fear the IRS again. If they fear the IRS today, it’s largely a needless fear. Unless your tax return is highly unusual, it’s unlikely to get audited. As long as your income, interest, dividends and capital gains are close to what your employer, banks and brokerages report to the IRS, you have virtually no fear of an audit. If audited, you are probably about as likely as to discover you overpaid your taxes as underpaid them.

It will take years to train a new set of IRS auditors. Hopefully there will be enough old timers still left to train the new bunch correctly. They should be unleashed as soon as they are able. There are lots of tax scofflaws out there, and most of the unpaid taxes are likely owed by businesses using dubious accounting techniques.

It’s harder for us ordinary people to cheat simply because so much of our income is reported automatically. It’s easier if you are paid by cash, but with electronic payments this is getting harder to do. The IRS may be aware that you are cheating on your taxes, but with its insufficient resources it simply chooses to ignore all but the most glaring examples.

The difference between government revenue and expenses is borrowed, so tax scofflaws simply add to our collective debt, and without paying penalties in most cases. Finally, all these decades later, by the slimmest of Democratic majorities, money is being allocated to fully modernize and staff the IRS. A true American taxpayer should be relieved that it will become harder to cheat on our taxes.

Reagan’s idea that government is evil seems to be finally giving way a bit. The United States Postal Service (USPS) is required by law to deliver mail to anyplace in the United States. If it were a true corporation, it could pick and choose who can receive mail based on how profitable doing it would be. For decades, Congress has told the U.S. Postal Service to act like a private corporation. It required the USPS to prepay for all its employees pension benefits. This and declining letter volume quickly caused it to go into a financial tailspin. Congress repeatedly told the USPS to be an entity it couldn’t be and placed constraints on it to force it to be a service while wanting it to act as a corporation.

Lately, even Republicans are agreeing that some government agencies are necessary. In February, the U.S. Postal Service was at least partially bailed out. The bill passed with a majority of Republicans voting for it. It took decades of degraded service and mini bailouts as revenues before Congress finally did the obvious thing: let the USPS be a service again.

It did something similar last year with Amtrak, providing $44B for transportation, allowing Amtrak to modernize. But you can’t expect the USPS to act like a corporation when it’s really a service. The same is true with Amtrak, which will never have competition for passenger rail service nationwide. The attempt to make the USPS act like a corporation was a needless decades-long fiasco. As services, the government must step up to provide the funding needed to ensure it stays a service, because we all need the USPS, even if it seems sometimes that we don’t.

We’ll need to see a lot more legislation before government is allowed to function with some semblance of normalcy. But with special funding for the IRS, USPS and Amtrak, it suggests Reagan’s foolish notion that the government is evil may be finally dying.

The coming Democratic blowout

How much does Donald Trump want to win reelection? So much that there is literally nothing he won’t try to win it. The only weird part is that the harder he tries, the more he screws himself.

He’s going for broke, which is sort of the way he’s run the Trump Organization, given its many bankruptcies over the years. He’s only increasing the odds that he will have to deal with many criminal charges and civil lawsuits after leaving office. In addition to his actions being counterproductive to him, they are going to devastate Republican candidates across the board, including in state legislature races.

Literally no other president would even consider doing something so patently illegal as maiming the Post Office. The Post Office has the overwhelming approval of people in all parties. It’s one of the few functions of government specifically written into the U.S. Constitution. Our founders saw a mail service as so essential that it is explicitly chartered as an allowed government service. Since its first postmaster Benjamin Franklin set it up, it’s been largely untouchable.

But to Donald Trump, it’s just something to manipulate to help ensure his reelection. His toady of a new postmaster general has prohibited overtime and removed mail sorting machines from hundreds of mail processing facilities, as well as removed dozens of people from his senior staff with deep institutional knowledge. It’s true that mail volume has decreased and some of this is necessary, but not when Americans are filling the mail system with ballots. Mail is backlogging in postal facilities nationwide and in many cases it now must be sorted tediously by hand by postal clerks who are prohibited from accruing overtime. People, particularly rural people who vote disproportionately Republican, depend on it for critical things like getting prescription drugs and social security checks. How do you think this way play politically for Trump?

But that’s all appears to be expendable to Donald Trump because he’s convinced if ballots can’t be counted because they don’t arrive, he’ll win. It will throw a huge amount of chaos into the election, but it’s unlikely to change any results in his favor. People concerned about their vote counting will probably drive by city hall instead and insert their ballots into the ballot box instead. That’s likely what we are going to do.

Similarly, there are his executive orders. Four were recently issued, but actually only one (the other three were memorandum with little teeth) qualifies. All this is because he and Democrats in Congress can’t agree on a pandemic funding bill. Democrats offered $3 trillion; he offered $1 trillion. Democrats suggested meeting in the middle at $2 trillion and he said $1 trillion and we’re not going any higher. When Democrats wouldn’t take the bait, he issued these “orders” instead, cutting the previous benefits from $600 to $400, of which states had to chip in $100 for unemployed to get any of this money. These states are already running in the red because the economy is down so virtually no states can afford this “system”. Oh, and the money would come from disaster relief funds … no chance of needing some of that money considering we’re having a very active hurricane season, right?

Then there’s his unilateral payroll tax “cut”, but it’s really a tax deferral. The taxes are still owed; it’s just that some employers may stop collecting them. This is very dubious legally, but of course it expands the budget deficit and worse, strikes at the heart of the solvency of the Social Security system. This is something else Trump doesn’t like and this looks like an end around to wound it, but his most staunch voters depend on its solvency.

Most likely Trump will eventually realize he has to strike a deal more to Democrats’ liking. He can hope of course that some of voters’ ire will also be directed at Democrats that can’t come to a deal, but the Democrat’s position looks much more politically tenable than Trump’s. In addition, it’s not like Democrats have been sitting on the sidelines. The Democratic House passed a generous bill back in May, but Senate Majority Leader Mitch McConnell refused to take it up. McConnell couldn’t even create a consensus bill among his own party and effectively washed his hands of the issue.

About half of his conference is opposed to all the deficit spending although not one of them will call for the repeal of their tax cuts for the rich to address the issue. That’s why Trump is left to negotiate with Democrats who are at least reasonably reunited. Naturally he can’t negotiate with Nancy Pelosi or Chuck Schumer directly. He’s got a tiff with Pelosi going, so it will have to be through his chief of staff and Treasury secretary. In the meantime, the unemployed don’t have much if anything in the way of income and most can’t pay their rent and many are likely to be evicted.

Then there is his continued bungling on the pandemic, which is now hitting mostly red states the most severely. He keeps pushing for deeply stupid things that make the crisis worse, which will get much worse when schools start to seriously reopen. Students will transmit the virus home to parents, and pass it on to their teachers and school staff. This will push infection rates even higher into the fall.

It’s a strategy not just for losing, but also for a Democratic blowout. And it’s not hard to figure out why. It’s because neither Trump nor the Republican Party have a clue on how to govern.