Moneybox

Republicans Have Taken a Brave Stand in Defense of Tax Cheats

WASHINGTON, DC - JULY 13: (L-R) Sen. Mitt Romney (R-UT), Sen. Rob Portman (R-OH) and Sen. Roy Blunt (R-MO) ride an elevator as they leave a bipartisan meeting on infrastructure at the U.S. Capitol on July 13, 2021 in Washington, DC. The Senate returned from a two-week recess with hopes of passing a more than $1 trillion bipartisan infrastructure plan. (Photo by Kevin Dietsch/Getty Images)
Sen. Mitt Romney (R-UT), Sen. Rob Portman (R-OH) and Sen. Roy Blunt (R-MO) ride an elevator as they leave a bipartisan meeting on infrastructure at the U.S. Capitol on July 13, 2021 in Washington, DC. Kevin Dietsch/Getty Images

America’s tax cheats continue to have no greater ally than the Republican Party.

That once again became clear over the weekend, when Rob Portman, the GOP senator from Ohio, announced that the bipartisan infrastructure package that lawmakers have been haggling over for months would not include a proposal to raise revenue by boosting funding for the Internal Revenue Service. The deal’s original outline would have provided $40 billion to help the financially beleaguered agency collect more of the taxes that Americans fail to pay each year. But after a rebellion by conservative activist groups, Republicans got cold feet about the idea. Now, they have officially nixed it.

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In a healthy two-party system where both sides believed in basic good government, financing new spending by improving tax enforcement would be an uncontroversial and common-sense proposal. It is, after all, a more or less free lunch that merely involves enforcing the laws as they exist. It’s a potentially large meal, too. Though estimates vary, IRS Commissioner Charles Rettig testified earlier this year that the government may be failing to collect more than $1 trillion of the taxes it is owed annually, up from the previous official estimate of $441 billion per year on average between 2011 and 2013. Even a portion of the missing revenue could pay for a lot of new roads.

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But, alas, we do not live in a healthy two-party system where both sides believe in basic good governance. Part of the reason so much tax revenue slips through Uncle Sam’s fingers every year is that Republicans have spent two decades waging an on-and-off war of attrition aimed at limiting the IRS’s powers and starving it of resources, which has ultimately crippled its ability to conduct tax audits on all but the poorest filers. As New York Magazine’s Jonathan Chait has explained at length, conservatives have justified this assault based on a series of literally made-up scandals.

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In the late 1990s, Republicans held an explosive series of hearings in which IRS agents were accused of committing grotesque abuses against taxpayers and engaging in “gestapo-like tactics.” Many of the stories turned out to be simply untrue, as a report by the General Accountability Office later revealed. One crucial witness, who among other things claimed tax agents had raided his restaurant at gunpoint and knocked his 12-year-old son to the floor, was forced to recant his story when it fell apart during a lawsuit. But the hearings led to a major 1998 reform bill that reorganized the IRS and limited its enforcement tactics.

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Republicans largely paused their assault on the tax authorities during George W. Bush’s presidency, but resumed it during the Obama era, after Tea Party groups accused the IRS of singling them out for politically motivated audits. The accusations generated an enormous, years-long scandal that embedded itself into conservative lore. It also turned out to be wholly untrue—a Treasury Department report eventually revealed that the IRS had been scrutinizing both progressive and conservative groups over potential tax violations. But the GOP used it as an excuse to eviscerate the IRS’ budget, eventually leading to massive losses of manpower—the agency’s staff shrank by 22 percent between 2010 and 2018.

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It seemed, for a moment, that even Republicans realized they had gone overboard when the Trump administration agreed to give the IRS budget a bump in 2019. Ditto when, earlier this year, the bipartisan gang of senators began talking about using tax enforcement to fund needed infrastructure spending. But conservative groups such as Freedom Works and the Committee to Unleash Prosperity—led by tax-cut evangelist, former Trump campaign adviser, and failed Federal Reserve pick Stephen Moore—mobilized against the proposal.

The arguments against it were shallow and sloppy at best. An op-ed by Moore and his longtime cohort Steve Forbes, which was reportedly widely read by Republican lawmakers, is instructive. It called back to the debunked Tea Party targeting scandal, and claims, without any evidence of a public uproar, that the IRS is embroiled in a new controversy over “agents illegally turning over private tax return data of millionaires and billionaires“ to Pro Publica. Then it argues that the best way to make wealthy Americans pay the taxes they owe is to cut their rates, so they’ll do it voluntarily. Stunningly, one of the main pieces of proof they cite is an op-ed about how the top 1 percent of taxpayers claimed fewer itemized deductions after they were limited by the Trump administration’s 2017 tax bill, a fact that is not remotely relevant to the question of how to deal with tax cheating.

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But at least Moore and Forbes bothered with specifics. Elected Republicans who opposed the revenue-raising idea didn’t even do that much. Texas Sen. Ted Cruz, for instance, merely offered that “throwing billions more taxpayer dollars at the IRS will only hurt Americans struggling to recover after waves of devastating lockdowns” and that “Instead of increasing funding for the IRS, we should abolish the damn place.” Again, the people currently not being audited are the wealthiest Americans who endured a year of lockdowns just fine, but thanks, Ted.

In the end, the Republican opposition to funding the IRS really seems to boil down to two issues, one overt, one less so. The public part is simply a nihilistic opposition to taxation and the basic functions of government that seems to grip even relatively moderate members of the party, such that there aren’t even 10 GOP senators who’ll support a major budget increase for tax enforcement. The less public part is basic interest group politics: A large chunk of America’s tax gap is due to underreporting by businesses and their owners, often on income where there’s no third party to verify it, the way your employer sends the government a copy of your W-2. Small and mid-sized business owners are a major constituency and source of fundraising for the Republican Party, and so GOP politicians have every incentive to help protect America’s restaurant owners, landlords, and construction contractors from being audited.

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It’s possible that the IRS will still get its budget bump, since Democrats have said they could include the additional funding in the $3.5 trillion reconciliation package they are separately considering. But the politics of doing so are a little tricky. Under its current rules, the Congressional Budget Office won’t count revenues generated by new tax enforcement efforts in its official score of the legislation, so even if it raises money in reality, it won’t on paper. I’m told changing that scoring rule permanently would require Republican support, but Democrats are looking into whether they can do it on a one-time basis as part of the reconciliation bill.

In the meantime, Republicans have showed their core philosophy when it comes to taxes. The party doesn’t just believe taxes should be low. They believe paying them should be optional.

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