Why Democrats Need to Save the IRS

AP Photo/Keith Srakocic

Personal income tax documents for 2018

Of all the supposedly radical ideas newly audacious Democrats have suggested, none may be more broadly popular than raising taxes on the wealthy. In whatever form it might take—raising the top marginal tax rate to 70 percent as Alexandria Ocasio-Cortez has suggested, or instituting a wealth tax as Elizabeth Warren proposes, or raising the estate tax as Bernie Sanders would like, there's almost nothing that would be an easier sell to the public, as polls have shown for years. As a recent Politico headline put it, "Soak the rich? Americans say go for it."

That doesn't mean that the rich themselves, and their representatives in the Republican Party, wouldn't react with horror and fight any such proposals with the teeth-baring fury of a cornered animal. One Fox Business host, upon hearing some of the poll results, lamented that "The idea of fairness has been promoted in our schools for a long time," and this has warped the minds of the young toward such abhorrent idea. But should Democrats get the chance—say in 2021 with a newly elected president and a Democratic Congress—there's something else they should do beyond just raising taxes on the rich. And they can even start preparing the ground now.

I speak of something almost no one talks about, because unlike taxing the rich it doesn't make for a crowd-pleasing chant. Democrats need to revive the Internal Revenue Service.

I'm guessing you didn't just leap out of your chair, your fist pumping up and down in agreement. But restoring American tax collection is absolutely critical to the long-term progressive project, not to mention the proper functioning of government.

To understand why you have to grasp the depleted state of the IRS and how it got that way. Over the last quarter-century the Republican Party has waged a war on the IRS, a war that has been tremendously successful. And you'll be shocked to learn that its primary beneficiaries have been the wealthy.

The story begins after the 1994 Republican takeover of Congress. Newt Gingrich and his colleagues decided that pushing to cut tax rates was not enough; they could serve the goal of limiting government by hamstringing the agency charged with collecting taxes. So they held a series of hearings meant to dramatize supposed IRS abuses, with people testifying about the horrors IRS agents had inflicted on them, some appearing behind screens to protect their identity from the presumably vengeful tax man.

With this picture of an IRS out of control in place, Congress soon passed a reform bill limiting its powers, and the agency's downward slide began. In 2013, Republicans forced a cut to the IRS budget, despite their ever-growing task. Then came the ludicrous "scandal" in which Republicans claimed that Tea Party groups were being targeted for vicious Obama administration harassment through the IRS. In truth, some inadequately trained officials trying to apply vague laws on what sorts of organizations qualify as 501(c)(4) charities were deluged with applications for that status from Tea Party groups dishonestly claiming they weren't primarily political, and in the end the only "harassment" the groups suffered was some delays in being officially granted (c)(4) status (and when your application is pending you're not restricted from doing anything).

But the facts didn't matter to the broader goal, which was to discredit the IRS and further prevent it from doing its job. More budget cuts followed, and the result is a tax collection agency that is degraded and demoralized. Paul Kiel and Jesse Eisinger of ProPublica describe the damage:

As of last year, the IRS had 9,510 auditors. That’s down a third from 2010. The last time the IRS had fewer than 10,000 revenue agents was 1953, when the economy was a seventh of its current size. And the IRS is still shrinking. Almost a third of its remaining employees will be eligible to retire in the next year, and with morale plummeting, many of them will.

So if you decide to cheat on your taxes, the chances you'll get caught are small and growing smaller all the time, since the IRS audits so few people anymore. Though there's actually one group of Americans who still have good reason to fear an audit: the poor. Someone making $20,000 a year who takes advantage of the Earned Income Tax Credit is twice as likely to be audited as someone making $500,000 a year. That too is partly a result of Republican pressure, to crack down on people who fraudulently claim the EITC.

But the rest of Americans are learning that cheating on your taxes is something that carries very little risk, which means that more and more people will do it, further starving government of the money it needs to fund the programs progressives would like to put in place. Kiel and Eisinger estimate that $18 billion per year is being lost in taxes that the IRS would have been able to collect had its budget not been cut in recent years.

Meanwhile, Republicans continue to not just undermine the IRS but to attack the very idea that paying taxes is a patriotic thing to do. Consider their last two presidential nominees. When it was revealed that Mitt Romney moved his money around in an intricately choreographed multinational dance including stops in places like Switzerland and the Cayman Islands, he said he was only doing what any sensible person would do. "I pay all the taxes that are legally required and not a dollar more," Romney would say. "I don't think you want someone as the candidate for president who pays more taxes than he owes."

Think about that for a moment. The Republican nominee for president argued that anyone who doesn't take advantage of every available tax shelter and loophole is such a contemptible fool that they've proven themselves unfit for the presidency.

And then came Donald Trump. When Hillary Clinton noted that tax returns he had to submit when applying for a casino license showed he had paid no federal taxes over one period of time despite his wealth, he shot back, "That makes me smart." Of course, he refused to make his tax returns public, like every other candidate and president in the last 40 years. And as The New York Times revealed in an exhaustively documented investigation published last October, in the 1990s Trump and his family planned and executed a massive tax fraud scheme that cheated the government out of hundreds of millions of dollars.

The fact that the president is almost a parody of everything wrong with the system as it is today provides Democrats a way to change the story around the IRS and the tax system in general. The first thing they need to do is obtain his returns from the IRS, as the House Ways and Means Committee has the right to do under current law. While it's entirely possible if not likely that those returns will deepen the Russia scandal and point toward other scandals we aren't even aware of yet, they're also likely to offer a shocking picture of how the wealthy are able to avoid paying their fair share.

So Trump's returns can be a jumping-off point for a new round of dramatic hearings about tax cheats, with the president and other super-wealthy characters cast as the villains of the story. Then Democrats need to come up with a reform package—including increased funding and the hiring of agents to replace all the ones that have left—to restore the agency so it can do its job.

It's not easy to win sympathy for the IRS, but you don't have to like paying your taxes to understand how important it is that everyone does. As Oliver Wendell Holmes said, taxes are the price we pay for the privilege of living in a civilized society. But everybody has to pay their fair share, and we can't make that happen—or fund the ambitious plans Democrats have to make our society more civilized—if the IRS doesn't work. 

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