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Billionaires Buy Governments to Avoid Paying Their Fair Share in Taxes
In legislatures, the courts, and our executive offices, we have a system rigged in favor of the ultra-rich, rigged by everything from acts of Congress and judicial rulings to IRS budgets and audit policies.
Aug 03, 2024
By all appearances, former U.S. President Donald Trump has cut a sweet deal with a dozen or two of America’s richest billionaires: Finance his campaign and he’ll keep their federal taxes super low—or even lower them—once he’s sitting back in the White House.
How much do billionaires like this deal? This much: In April, hedge fund billionaire John Paulsen held a Palm Beach fundraiser for Trump that brought in $50.5 million. Immediately after Trump’s late May conviction on 34 felony counts in Manhattan, Timothy Mellon, the grandson of the classic plutocrat Andrew Mellon, ponied up $50 million. Miriam Adelson, the billionaire widow of Las Vegas kingpin Sheldon Adelson, appears eager to kick in as much as $100 million.
This past spring, meanwhile, billionaires Elon Musk and David Sacks reportedly held a secret dinner party for Trump, with attendees including the illustrious deep pockets Peter Thiel, Rupert Murdoch, and Michael Milken.
The rich themselves have actually become more brazen about avoiding taxes. Just try to stop us, they seem to be saying.
America’s billionaires clearly see politics as one route to ensuring they pay as little as possible at tax time. But they don’t just make their presence felt at election time. America’s rich have their thumbs firmly on the scale of all three branches of government. In legislatures, the courts, and our executive offices, we have a system rigged in favor of the ultra-rich, rigged by everything from acts of Congress and judicial rulings to IRS budgets and audit policies.
Some of this rigging we can all easily see. The dividends and long-term capital gains of the ultra-rich have for decades faced a maximum tax rate barely half the maximum rate applicable to other forms of income. And the investment income of the rich, unlike the paychecks of working people, faces no Social Security tax.
In 2017, the first year of the Trump presidency, intense lobbying efforts helped rich business owners to a special tax rate for their business income. In 2018 alone, according to ProPublica, that special rate translated into a $67 million gift to Mike Bloomberg, whose personal wealth now reportedly exceeds $100 billion.
But these glaring privileges the rich enjoy at tax time only tell part of the billionaire tax story. Other parts get precious little attention. In 2004, for instance, lawmakers in Congress enacted a penalty for the failure to disclose potentially abusive tax avoidance transactions on tax returns. The penalty on the surface looked substantial: 75% of the tax sought to be avoided. But Congress capped the penalty at $100,000, a move that turned the penalty into a minor nuisance for billionaires seeking to avoid millions of dollars in taxes.
In our current rich people-friendly tax climate, IRS staff who want to do the right thing face tough going. Recently, for example, one former IRS staffer, Michael Welu, went public with his concerns that the IRS itself has both official and unofficial policies that end up treating audited rich taxpayers much more gently than small business owners.
“I was putting butchers, bakers, and candlestick makers in jail,” Welu told the International Consortium of Investigative Journalists, “but the big stuff we really wanted to go after was being ignored.”
Welu found the upper management of the IRS division tasked with auditing the super rich—and the corporations they run—distinctly uninterested in investigating America’s richest and their “most egregious, ridiculous schemes” for avoiding taxes.
IRS officials like Michael Welu do occasionally speak out. But only tax wonks truly have any real sense of how much obscure tax code penalties and IRS audit policies favor the rich. And most of those tax wonks work for the rich.
The rich themselves have actually become more brazen about avoiding taxes. Just try to stop us, they seem to be saying.
Take the recently decided Supreme Court case, Moore v. United States. Working through an array of right-wing organizations, the conservative mover-and-shaker Leonard Leo attempted to use a challenge to an obscure one-time tax as a vehicle to preempt Congress from ever taxing the wealth or unrealized gains of the ultra-rich. Ultimately, the court decided the case without ruling on whether the rich can be taxed on their wealth or unrealized gains. But the opinions that four of the nine justices handed down made it clear that they stand prepared to do the billionaire bidding should a direct challenge to a tax on the wealth or unrealized gains of billionaires come before them.
Billionaires now have at least three Supreme Court justices firmly in their pockets. Reporting by ProPublica has revealed the massive gifts that have been flowing from Harlan Crow and other billionaires to Justice Clarence Thomas as well as the generous gifts that billionaire Paul Singer has been sending Justice Samuel Alito’s way. Justice Neil Gorsuch has had his entire career, including his appointment to the court, funded by the billionaire Philip Anschutz.
Those three justices, along with Justice Amy Coney-Barret, have now made it patently obvious they will not allow billionaires to be taxed on their unrealized gains or their wealth. Does anyone really think the billionaires won’t have the crucial, majority-making fifth vote from Justice Brett Kavanaugh when they need it?
Republican members of Congress are showing even less shame than our Supreme Court justices. Last year, these GOP lawmakers held the country hostage in negotiations to increase the country’s debt limit. Their price for agreeing to raise the debt limit, thereby avoiding a default on the country’s debt? They demanded—and won—a reduction in a scheduled IRS budget increase that would been used to increase enforcement moves against rich taxpayers.
The purported motive for this legislative hostage taking—“concern” over the federal deficit—made for an absurd justification. The proposed increase in the IRS budget would have been recovered, several times over, through increased tax collections. The IRS budget reductions the Republican lawmakers extracted will, in fact, only increase the federal deficit. But those reductions will serve a political purpose. They’ll protect the GOP’s richest patrons from tax enforcement.
The mainstream media, to no one’s surprise, did a miserable job of exposing this Republican dishonesty in the debt limit negotiations. But at one point in our recent past a courageous soul did emerge to expose the rot in our tax system. What happened? The ultra-rich and their henchmen in Congress make sure that this soul faced a punishment far more severe than any punishment ever meted out to those few rich Americans who actually get caught evading their taxes due.
That courageous soul, Charles Littlejohn, worked as an IRS contractor. He leaked tax return information related to Trump and America’s billionaires to The New York Times and ProPublica. ProPublica used that leaked information to write over 50 stories about billionaire tax avoidance, embarrassing and angering many of our richest in the process. Two of them even brought lawsuits, one against the IRS and the other against Littlejohn’s employer.
Ultimately, Littlejohn pled guilty to one count of unauthorized tax return information disclosure, a crime that carries a recommended sentence of four to 10 months. But 25 Republican members of Congress, undoubtedly at the behest of their billionaire patrons, wrote the judge in the case and urged the harshest possible sentence of five years. The judge obliged, stating in her sentencing remarks that Littlejohn posed a graver threat to democracy than the January 6 rioters. As tax law professor Reuven Avi-Yonah has noted, Littlejohn is now serving a sentence far harsher than any imposed on rich Americans convicted of tax evasion.
Littlejohn’s extreme sentence did not reflect the one single count of unauthorized tax return information disclosure he pled guilty to. That sentence reflects his “crime” of exposing the tax avoidance of the billionaire class.
Try this thought experiment: Imagine if Littlejohn had released the return information of 1,000 or so taxpayers with modest incomes to ProPublica. Imagine that ProPublica had then publicly detailed all the tip income that servers and bartenders among these taxpayers had failed to report and all the social meals that small business owners in the sample had claimed as business expenses. If Littlejohn had then pled to one count of unauthorized disclosure, would 25 members of Congress have intervened? Would the judge have imposed a sentence over six times the maximum recommended in federal sentencing guidelines?
Doesn’t it become dangerous to society when the punishment for a crime depends on who the victim happens to be?
We are now living that danger. Our billionaires sit firmly in control. And they will do whatever it takes to make sure they never pay tax at an appropriate level—even if that means locking a human being up for a preposterously long time just to send a message.
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Tax Prep Companies’ Business Model Exploits Low-Income Payers
The average parent in low-income communities is being bombarded with advertising designed to trick them into wasting their hard-earned money that could otherwise be going to groceries, gas, and other necessities.
Apr 16, 2024
How far could an extra nine hours and $150 go for you and your family? That’s how much Intuit’s TurboTax and H&R Block are taking from their average customer in low-income neighborhoods. Many of these customers don’t know that they can access these services for free—and that’s intentional. The average parent in low-income communities is being bombarded with advertising designed to trick them into wasting their hard-earned money that could otherwise be going to groceries, gas, and other necessities.
With Tax Day just passed, corporate tax prep giants are trying to extract every last dollar they can from Black communities and working-class taxpayers. A new report in partnership with Better IRS, titled Preying Preparers: How Storefront Tax Preparation Companies Target Low-Income Black and Brown Communities sounds the alarm on how exploiting low-income taxpayers is core to the business model of tax prep companies.
As it stands, 70% of taxpayers are eligible to file their taxes for free, but less than 3% have actually used the failed, corporate-backed free file service. The overwhelming majority of qualifying taxpayers are being coerced by unscrupulous corporate practices like deceptive advertising, overcharging, or hiding the free options.
Now that the IRS has made Direct File a free option, we call on the agency to expand the program.
Tax prep companies rely on and take advantage of economically disadvantaged communities. In fact, areas with the most people claiming the Earned Income Tax Credit have 75% more tax preparers for each person filing taxes compared to areas with fewer people claiming the credit. Furthermore, these major companies primarily hire what are called “unenrolled” tax preparers who lack expertise, certification, or credentials in tax rules and policy. Tax prep companies bank on their proximity, non-stop advertisement, celebrity endorsements, sweepstakes, and giveaways to legitimize their illegitimacy.
Unsurprisingly, companies like H&R Block have dismissed our report by noting the prolific number of locations, the years of experience of their preparers, and their 100% accuracy guarantee. They believe that because there are 9,000 locations across 50 states and most Americans live within five miles of one of their stores, then surely they must be helping hardworking families.
What this actually confirms is that H&R Block preys on low-income communities and communities of color by saturating the neighborhoods of targeted EITC-eligible taxpayers. Additionally, admitting unqualified preparers have been filing taxes for an average of 10 years or more is cause for concern. The predatory locations and disproportionate filing of EITC-eligible tax returns can both explain why Black taxpayers are audited at higher rates than their counterparts and why many people fail to take the deduction even though they are eligible. In this instance, correlation is causation.
These companies claim they are operating within the rules of the game—of which there are none. In 2010, the IRS tried to regulate the practice citing “an abysmal failure rate among unenrolled preparers” and pointing out that 1 in 4 of the 84,000 unenrolled preparers who took the competency exam failed, and more than 320,000 others never took it. That’s why we’re asking for accountability and for regulation of these tax preparers.
The introduction of the IRS Direct File pilot program represents a significant opportunity to dismantle economic inequality in our tax system. Direct File provides a much-needed alternative to costly tax preparation services in 12 states. This service is simple, free, readily available online, and a step in the right direction that empowers working-class people with an option to keep money in their pockets.
In the fight against corporate greed, we stand firm in our resolve. It’s time to hold these giants accountable, to empower the working class, and to build a fairer, more just system for all. Recent enforcement actions by the Federal Trade Commission are an important step; the public should know if they were overcharged and by how much.
With overwhelming public support for IRS modernization, including competency exams to ensure accountability and professionalism, the time for change is now. Now that the IRS has made Direct File a free option, we call on the agency to expand the program. The pursuit of an economy that works for everyone is ongoing. It starts with holding corporations accountable for their exploitative practices, advocating for policy solutions that prioritize the needs of working-class individuals, and ensuring equal access to resources and opportunities for all tax-payers.
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In Latest Crackdown on Rich Tax Cheats, IRS Pursues 125,000 Non-Filing Cases
"At this time of year when millions of hard-working people are doing the right thing paying their taxes, we cannot tolerate those with higher incomes failing to do a basic civic duty of filing a tax return," the IRS chief said.
Mar 01, 2024
The Internal Revenue Service announced on Thursday that it was going after high-income earners who had dodged taxes by failing to file tax returns since 2017.
The agency said it would begin mailing compliance letters this week in more than 125,000 cases in which people making over $400,000 a year had refused to file. The enforcement action was made possible by increased IRS funding in the Inflation Reduction Act (IRA).
"At this time of year when millions of hard-working people are doing the right thing paying their taxes, we cannot tolerate those with higher incomes failing to do a basic civic duty of filing a tax return," IRS Commissioner Danny Werfel said in the announcement. "The IRS is taking this step to address this most basic form of non-compliance, which includes many who are engaged in tax evasion."
"Funding the IRS to track down wealthy tax cheats pays off big time."
Non-filing by the wealthiest Americans has cost the federal government a significant amount of money in recent years. In 2023, a report found that more than 1.4 million high-earning U.S. taxpayers had not filed at all from 2017 to 2020, depriving the government of $65.7 billion.
The IRS does not know exactly how much it might recuperate through this current round of compliance letters. While the cases deal with financial activity of more than $100 billion, taxpayers may be able to claim credits or deductions. However, the agency said that "even with a conservative estimate, the IRS believes hundreds of millions of dollars of unpaid taxes are involved in these cases."
The IRS will send out between 20,000 and 40,000 compliance letters, or CP59 notices, each week, starting with the highest earners. That includes more than 25,000 who made more than $1 million between tax years 2017 and 2021 and more than 100,000 who made between $400,000 and $1 million. Individuals may be included in the total case count more than once if they refused to file on more than one year during the target period.
Those who fail to respond to the letters will face additional notices and enforcement actions, including audits, collections, and "potential criminal prosecution."
The IRS is making this effort now because it finally has the resources to do so, the agency explained.
"Without adequate resources, the IRS non-filer program has only run sporadically since 2016 due to severe budget and staff limitations that didn't allow these cases to be worked," the agency said.
However, the IRA earmarked $80 billion for the agency following years of chronic underfunding from Republican lawmakers and administrations, which has already allowed it to claim more than $500 million from wealthy tax evaders since 2022.
"With the Inflation Reduction Act resources, the agency finally has the funding to identify non-filers, ensure they meet this core civic responsibility, and ultimately help ensure fairness for everyone who plays by the rules," Werfel said on Thursday.
Thursday's announcement is only the latest in the IRS' renewed efforts to crack down on wealthy corporations or individuals who cheat on taxes. Last week, it announced plans to audit the use of private jets for non-business travel. The agency has also collected more than $480 million so far from a group of 1,600 millionaires who each owed at least $250,000, CNBC reported last week.
Overall, Werfel told CNBC there was a "tax gap" of over $150 billion each year that the wealthy owe but do not pay. However, spending on enforcement works: The IRS calculates that it earns back around $6 for every $1 spent.
"$13,011 per hour—that's the amount of unpaid taxes that the IRS has found by auditing the ultra-rich who made over $10 million in 2022," Sen. Elizabeth Warren (D-Mass.) posted on social media Thursday. "Funding the IRS to track down wealthy tax cheats pays off big time."
However, the IRS' new funding is already threatened by congressional Republicans. As part of the debt-ceiling deal, they successfully persuaded the Biden administration to slash $20 billion of the new IRA funding, and House Speaker Mike Johnson (R-La.) is pushing for more cuts. If the funding remains in place, the Treasury Department and IRS have calculated that the agency could boost government revenue by up to $561 billion over the next decade. The revenue would be around $100 billion less if the $20 billion in cuts go through.
"If millionaires and billionaires actually paid all the taxes they already owe, we'd have enough money to fund universal child care and STILL have more left over," Warren said further. "The IRS' crackdown on wealthy tax cheats is paying off—but Republicans are trying to stop it."
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