QUESTION: WHO GOT YOUR PAY RAISE MONEY?
ANSWER: This one is almost too easy to answer. You probably already read who took it in other media material. The latest IRS analysis of how much money tax cheats are stealing from the U.S. Treasury shows that they made off with a whopping $385 billion in 2006. Their heist amounts to about $1,300 for every man, woman, and child in the country. A family of four lost about $5,200 a year that could have been spent to help them or even to buy down their share of the debt. It would have taken less than 5 of those 385 billion a year to fully fund federal employee pay raises.
How did they get away with the loot? Congress designed the tax system primarily to catch individual, wage-earning, tax payers whose income is reported via an annual W-2. Small businesses, corporations and the wealthy were given a lot more leeway to play fast and loose with their taxes. Large portions of their income need not be objectively reported to the IRS. They operate on a kind of honor system when it comes to reporting income from rents, partnerships, capital gains, self-employment earnings, off-shore income, royalties, licenses, private foundations, company loans, and high dollar executive perks.
(On top of that, Congress created a boatload of corporate tax loopholes, such as the “Dutch Sandwich” and the “Double Irish” that permit mega-corporations such as Google, Pfizer, GE, Oracle, Lilly, Facebook, and Microsoft to legitimately avoid paying tens of billions in taxes, according to NPR.)
While IRS will not reveal who these folks are, it has identified what kind of taxpayers they are. Corporate income tax payers took about $67 billion, individuals with business income made off with $122 billion, and those business owners that were self-employed or who employed others never paid the employment taxes they withheld for Social Security and Medicare to the tune of $72 billion. Not long ago Forbes Magazine reported on another IRS study that showed that those taxpayers earning between $500,000 and $1,000,000 a year failed to report about 21% of their income to IRS. In contrast, the taxpayer making between $50,000 and $100,000 only failed to report about 8% of their actual income. Small businesses underreported their real income by an astounding 43% and the smallest of business, the sole proprietors failed to report 57%.
But the Congressional aiding and abetting of this U.S. Treasury stickup doesn’t stop there. Certain elected representatives, generally those complaining about big government as opposed to big business, have repeatedly voted to stop IRS from hiring the number of employees it needs to track down the tax thieves. In 1997 IRS had 14,500 Revenue Agents who focused primarily on corporate and business taxpayers. It is now down to a little over 13,000 and thanks to Congress is forced to move through audits at a much slower pace.
Over the next few weeks you will hear from these Congressional accomplices that IRS is being too harsh on the type of taxpayers that IRS studies show cheat the most. A recent Wall Street Journalarticle foretold the battle cries to come. Its headline about the new IRS data focused on its perspective that “IRS Targets High Earners.” (That is like complaining that the Drug Enforcement Agents are unfairly targeting the Mexican drug cartels. OK, maybe that is an exaggeration.) The Journal made sure that the entire business community and the very wealthy were alerted to the fact that IRS had managed to scrap together funds somehow to target them and their scams. It pointed out 12.5% of those earning more than $1 million a year were visited by the IRS for audits in 2011 while only 8.4% were the year before. Coincidently, just a few days before this data was officially released Congress shaved another $300-plus million off the IRS budget despite the President’s request for a budget increase to collect the money already owed.
Just one last tax fact before we close. USAToday reports that more than 3,700 federal contractors received $24 billion in stimulus money despite failing to pay federal income taxes fully. Together those contractors owed $750 million in back taxes.
So, when you are complaining about having to pay more for retirement benefits, health insurance, and other benefits while getting chump-change raises—at best, focus your anger where it belongs. Write or call a Congressional rep and demand that he/she beef up IRS. Use the facts of this story to write letters to the editors of your local papers. Share this news with friends and make sure your voting-age children know why we have a growing national debt that is taking their future. When contacted for campaign contributions, write a letter about this scam and send it back to the campaign rather than cash. You could get decent raises once again and all of us could get a tax cut if the cheats were just held accountable.