The Treasury Department told Congress last month that under-collected taxes are on track to total $7 trillion over the next decade, or about 15% of total tax revenues that would be owed under the law, thanks in part to budget cuts over the past decade that have sharply scaled back audits.
Deputy Assistant Secretary Mark Mazur recently explained to Congress that this trend has negative consequences, including higher tax rates elsewhere in the economy — that is, the costs are borne by people who follow the rules — as well as the fact that “persistent non-compliance also undermines confidence in the fairness of our tax system.”
As other experts have explained, much of the “tax gap” as it is known comes from higher-income earners. While nearly all regular wage income is properly reported, other forms of income such as business partnerships and capital gains have higher rates of misreporting. (This news also comes in the context of a political environment in which billionaire executives such as Jeff Bezos and Elon Musk have successfully avoided having to even pay federal income taxes in some years, by receiving much of their compensation as stock in their own companies.)
Wall Street Journal columnist Bill McGurn, however, has written a column opposing the Biden administration’s proposal for $80 billion over the next decade in additional funding for the Internal Revenue Service, to increase enforcement capability that it says could bring in $700 billion of missing taxes. And while even this level of enforcement would still just represent 10% of the total noncompliance, McGurn says it goes too far.
McGurn’s answer to rich people dodging taxes: Cut their taxes, so they won’t have to dodge them
In a July 5 column titled “Defund Joe Biden’s IRS,” McGurn argued that the answer should be to have fewer rules and regulations in the first place — that is, to cut taxes even more, so there wouldn’t be such laws for the wealthy to be breaking. This position stands in contrast to Mazur’s remark that tax non-compliance erodes trust in the system, and it also breaks with McGurn’s own traditional support for “broken windows” policing and upholding respect for the law:
There are two schools of thought here. The first—call it the Joe Biden School—holds that the answer is to give the IRS the authority, funding and manpower it needs to go out and bring in that missing revenue. Accordingly, an $80 billion IRS infusion will more than pay for itself by generating an additional $700 billion in tax revenue over the next decade. It’s a bargain at the price.
The other school—let’s call it the Milton Friedman School—holds that the best tax collection system comes from a tax code that keeps taxes low, fair and simple. In either case, the kind of IRS you believe you need is more or less dictated by the tax code you prefer.
McGurn then spun the news about billionaires who have avoided paying taxes into an argument against more funding to the IRS for enforcement. “The Biden School no doubt sees the release of this information as bolstering the Democratic case for socking it to the rich,” McGurn wrote. “The Milton Friedman School might read this differently: If the IRS can’t even meet its most fundamental responsibility of keeping its most sensitive information confidential, should the president and Congress even be talking about giving it more power?”
In addition to repeatedly referencing Friedman, the late libertarian economist, McGurn also cited a right-wing organization’s study on the costs of tax compliance in order to argue against increased IRS enforcement.
This is everything from the hours Americans spend preparing their taxes to the industry of lawyers and accountants businesses have to hire to get the job done. The National Taxpayers Union Foundation puts the total compliance burden (including opportunity costs) imposed by the tax code at $304 billion for 2020—1.4% of gross domestic product.
The economic term “opportunity costs” refers to the other activities that a person might potentially have done with their time. So at first glance, a conservative group including this concept in addition to real imposed dollar costs of tax preparation and financial record-keeping could present its own opportunity for an ideologically aligned author to get creative, and simply invites more speculation. (Who is to say how much of a person’s tax preparation time would have otherwise been spent on economically productive activities, rather than on leisure?)
There is, however, another answer to the work that most Americans must put into filing their taxes: Since most wage income is normally reported, the IRS could easily send workers tax returns that have already been filled out, while freeing up enforcement resources for the larger cases, such as wealthy people who are able to hide other sources of income. However, the tax preparation industry giants such as Intuit and H&R Block have lobbied against these proposals for years. (One of McGurn’s colleagues, Journal editorial features editor James Taranto, has also criticized the idea — and like McGurn, argued that the real problem was the tax system itself: “The TurboTax business wouldn't even exist if Congress had not seen fit to enact a tax code too complicated for most people to navigate.”)
McGurn resurrects the right wing’s manufactured IRS “scandal” from many years ago
In his warnings of what a better-funded IRS might mean, McGurn also dredged up one of right-wing media’s manufactured scandals from many years ago — with absolutely zero acknowledgment that it had been debunked.
The White House use of the word “investment” to describe the $80 billion is part of the sales pitch. Certainly, it has a better ring to it than calling it $80 billion in “more federal spending.” But inasmuch as the nation is being asked to “invest” in the IRS, surely it’s worth asking about past performance.
Remember Lois Lerner? During her tenure as director of exempt organizations, the IRS unfairly singled out conservative nonprofits for special scrutiny and harassment. She refused to testify before Congress, while John Koskinen, then the IRS commissioner, stonewalled. It was a sobering lesson in how one of Washington’s most powerful agencies can be weaponized against political opponents.
The IRS “scandal” of 2013 involved allegations stoked by right-wing media and Republicans in Congress in May 2013, claiming that IRS officials had intentionally given increased scrutiny to conservative organizations seeking tax-exempt status. Though the officials involved were based in Cincinnati, conservative media kept insisting that the Obama administration itself must have been involved, with Fox News pushing for the appointment of a special prosecutor.
However, it soon emerged in June 2013 that the supposed scandal had been fake from the start. The Associated Press obtained documents showing that IRS screeners, in addition to looking for terms such as “tea party,” had also included “progressive” and “occupy” — in short, the agency was doing its job in a fair manner. (Not only that, but it had already been known for years that the only three advocacy organizations to actually be denied exempt status were progressive ones.)
In addition, the inspector general’s report that supposedly highlighted the mistreatment of conservative groups failed to mention the treatment of progressive groups because Republicans in Congress, spearheaded by Rep. Darrell Issa (R-CA), had deliberately constrained the report to only look at the screening of organizations with terms like “tea party” or “patriots.” Thus the fake scandal’s verdict was engineered from the start, resulting in waves of false news coverage and the defamation of multiple government officials.
One of those defamed officials was the Washington-based Lois Lerner, who had stated that “as soon as we found out what was going on, we took steps to make it better and I don’t expect that to reoccur.” And even the IG report, constrained as it was to only focus on treatment of conservative organizations, stated: “After being briefed on the expanded criteria in June 2011, [Lerner] immediately directed that the criteria be changed.”
In the end, sadly, the artificially engineered scandal succeeded at creating a false narrative for the long haul. After outlets filed waves of stories about the scandal when it appeared legitimate, media coverage simply dropped off after it was disproven, rather than having to run any full-force corrections of what was going on — or explanations of how an entire ecosystem of dishonest right-wing media had taken them all for a ride.
And with no accountability at the time, McGurn can continue to propagandize based on this story — now only a distant memory in most people’s minds, and missing its key context — in order to advance yet another set of dishonest talking points against a Democratic administration.
Indeed, McGurn appeared Tuesday on The Wall Street Journal’s corporate sibling Fox Business, largely repeating the various talking points from his column. But it was Varney & Co. guest host Ash Webster who interjected with the supposed example, “I also think of Lois Lerner and conservative groups being targeted, that also is out there.”
McGurn then claimed: “And you can see what happens when a few people, out of political motivations, weaponize, these vast powers people have. And why you would be giving $80 billion more to an organization that never really — never really answered to that question.”
Of course, the “answers” have been out there for the past eight years, that the whole scandal was faked — that IRS employees in Cincinnati did not act out of political motivations, and conservative groups were not unfairly targeted compared to progressive ones. Even a later report by House Republican investigators, led by Issa, failed to connect White House officials to any of it.
The Wall Street Journal’s opinion section, however, has never let facts get in the way of its favored narrative.