It’s no secret that many Republicans believe in taxing the rich lightly, if at all. For decades now, they’ve seized every opportunity when in power to cut taxes for the rich. The top federal income tax rate has been chopped from 70 percent in 1980 to barely half that, 37 percent, today. The corporate tax rate, which stood at 46 percent in 1980, has been more than halved, to only 21 percent. As a percentage of their wealth, the tax payments of billionaires have fallen a jaw-dropping 79 percent since 1980.
Is this just a logical outgrowth of Republicans’ belief in trickle-down economics and limited government? Or does the logic flow in the other direction — are trickle-down economics and limited government merely justifications developed to protect the rich from taxation? Judging from the nearly non-existent track record of trickle-down economics success stories and Republicans’ idea of limited government involving nothing beyond shredding the social safety net, it seems protecting the rich from taxation is the end, not the means.”
The real tell, though, is an insistence on protecting rich tax cheats from taxation.
Every time a new Congress convenes, the first few bills considered offer insight into the new majority’s priorities. We just saw House Republicans kick off the 118th Congress with a bill to reverse increases in the IRS budget aimed specifically at ramping up enforcement efforts against the top one percent, who are estimated to evade $163 billion per year in federal taxes. Of all the country’s many problems, they felt that the absolute most important thing worth their attention was helping wealthy tax dodgers escape detection.
This seeming desire to cripple the IRS’s pursuit of wealthy tax dodgers is not a recent development. Beginning in 2011, when they took control of the House, Republicans gutted the IRS. Since 2010, the IRS enforcement budget has declined by almost 25 percent. Audit rates of those with incomes over $5 million per year have decreased from 16 percent to 2 percent.
In 2021, the infrastructure bill nearly cratered because Republicans in the bipartisan group negotiating the bill insisted on dropping $40 billion in IRS enforcement funding that would have netted $100 billion in new revenue.
Republicans’ work to shield rich taxpayers has not been limited to defunding the IRS enforcement arm. Other than audits, the IRS has two vehicles to limit aggressive tax avoidance: information reporting and the threat of penalties. On both those fronts, Republicans have run interference for the wealthy.
In 2021, Republicans attacked a provision in the proposed Build Back Better legislation that would have expanded information reporting by financial institutions to the IRS, which was aimed at wealthy taxpayers.
And in perhaps their most cynical maneuver on this front, Republicans themselves passed legislation in 2004 that imposed harsh penalties on taxpayers who failed to disclose their participation in what the IRS has identified as abusive tax avoidance transactions. Harsh, that was, for taxpayers who attempted to avoid modest amounts of tax. For those who attempted to avoid enormous amounts of tax, not so much. The penalty, you see, was a flat $100,000 penalty, regardless of the amount of tax involved. That’s devastating for someone who sought to dodge $10,000 in tax. For someone who sought to dodge $10 million, it’s trivial. The penalty’s unfairness was partially addressed in 2010 by limiting it to 75 percent of the amount of tax sought to be avoided. But the penalty still is capped at $100,000, rendering it practically meaningless for super high-income taxpayers.
Republicans have actively undermined measures to help the IRS identify rich tax dodgers, measures to expand audits of rich tax dodgers and penalties to discourage tax dodging by the rich. Coddling the rich in that manner has nothing to do with limited government or supply-side economics.
Given that background, the House Republicans’ latest proposal, to replace the federal income tax and other taxes with a 30 percent federal sales tax and abolish the IRS, should be entirely unsurprising. For a family living on a $60,000 annual income and spending virtually all of it, that would equate to a hefty 23 percent tax on their income. For a retired person spending money on which she’d already paid income tax, the 30 percent federal sales tax would be downright punitive.
But for ultra-rich families living extravagantly off of only 20 percent of their $100 million incomes, that 30 percent sales tax would translate to a paltry 6 percent income tax, without even cheating.
And if they did cheat? Well, then there would be no IRS to chase them.
Bob Lord, a tax lawyer for 35 years, is a Senior Advisor on Tax Policy for the Patriotic Millionaires.