U.S. Loses $600B A Year In Unpaid Taxes - That Can Be Fixed

Yesterday, I posted about how the super rich avoid paying income taxes legally (paying only a tiny percentage of their yearly increase in wealth). While that should be fixed, it probably won't because the Republicans will filibuster any attempt to do so.

But there is also another problem -- the $600 billion the country loses each year in illegal tax evasion. This is a problem that both parties should agree on fixing.

The following is an op-ed written by 5 former Secretaries of the Treasury (who served in the administrations of Obama, Bush, and Clinton) on how to fix that problem. It was published in The New York Times:

Six hundred billion dollars per year, and growing: That is two-thirds of total nondefense discretionary spending by the federal government, about what is spent on defense operations, military personnel and procurement, and more than mandatory federal expenditures on Medicaid. It’s also approximately how much unpaid taxes cost the U.S. government. This must change, and it can.

The five of us served as Treasury secretary under three presidents, both Republican and Democrat, representing 17 years of experience at the helm of the department. While we are not in agreement on many areas of tax policy, we believe in the importance of strengthening the tax system to do more to collect legally owed but uncollected taxes — which, left unaddressed, could total $7 trillion over the next decade. We are convinced by the strength of our experiences that more can be done to pursue evasion in the ways outlined by President Biden’s recent proposal to increase the resources and information available to the I.R.S.

Over the past 25 years, I.R.S. resources have been steadily cut, with the ratio of enforcement funding to returns filed falling by around 50 percent. Today, the I.R.S. has fewer auditors than at any time since World War II. Faced with resource constraints, it is no surprise that the agency is not able to appropriately focus scrutiny on complex returns, where noncompliance is greatest. Of about four million partnership returns filed in 2018, the I.R.S. audited only 140 of them. It did not pursue 300 high-income taxpayers who together cost the agency $10 billion in unpaid taxes over a three-year period when they failed to even file returns. And audit rates of those in the top 1 percent have fallen most staggeringly over the course of the past decade, such that rural counties in the Deep South have some of the highest rates of examination in the country.

The president’s proposal calls for significant investment in the I.R.S., with $80 billion over a decade in primarily mandatory funding to provide multiyear resources to support necessary work force, service and information technology advancements. In particular, the agency’s siloed and antiquated I.T. is a major source of risk, causing server crashes and leaving the I.R.S. susceptible to cyberattacks. It is imperative that the information technology undergirding our tax system keep pace with the information technology driving our economy.

The proposal also calls for increasing the information the I.R.S. has at its disposal. When income can be verified by third-party reports — like wages, salaries, pension and unemployment income — misreporting rates are under 5 percent. But misreporting exceeds 50 percent for certain types of business income, like rental and proprietorship income. The current tax system thus benefits certain high earners who accrue most of their income from sources where misreporting is common.

We are convinced that better information-reporting requirements can be designed that will permit significant increases in revenue collection without imposing any burden at all on taxpayers and imposing no significant increase in regulatory burdens across the economy. Relying on financial institutions to relay some basic information about account holders is a sensible way forward. With better information for the I.R.S., voluntary compliance will rise through deterrence as potential tax evaders realize there is a risk to evasion.

The Treasury’s Office of Tax Analysis estimates that these initiatives will generate $700 billion over the 10-year budget window. But this proposal, if anything, is modest. Former I.R.S. Commissioner Charles Rossotti, who served under Presidents Bill Clinton and George W. Bush, and Fred Forman, an experienced technology executive and former I.R.S. associate commissioner for modernization, estimate $1.6 trillion could be collected within a decade from efforts to close the gap between taxes owed and collected. This is because they include, for example, modernizing outdated technological systems and improving taxpayer experiences with the I.R.S. — elements of the administration’s proposal whose revenue impact is not accounted for.

Rightly, the Biden approach recognizes that compliance can be improved by making it easier for taxpayers to avoid honest errors, by the I.R.S.’s being able to pick up the phone when taxpayers call with questions and by increasing oversight of tax preparers to ensure their competency.

We know firsthand the challenge dedicated I.R.S. employees face each day as they work to administer tax laws while hamstrung by inadequate funding and support. Reasonable people can disagree on the magnitude of particular tax rate increases. But on this issue, all should agree, including members of Congress of both parties: Giving the I.R.S. the tools it needs to improve compliance will raise significant revenue and create a fairer, more efficient system of tax administration.

(Timothy F. Geithner, Jacob J. Lew, Henry M. Paulson Jr., Robert E. Rubin and Lawrence H. Summers are former U.S. Treasury secretaries.)

Harriet Tubman Is A Great Choice For The $20 Bill

The Treasury Secretary has announced that the new face for the $20 bill will be Harriet Tubman. I think that's a great choice. I was going to write something about this, but the editorial board of the Dallas Morning News said what I wanted to say about as well as it could be said. So I bring you their great editorial:

All nations great and small tell their stories in a thousand different ways.

They tell their stories in the sanctioned texts schoolchildren study. Some stories are found in the speeches politicians give on holidays like the Fourth of July or Cinco de Mayo. Others come to us, one generation to the next, in the movies, newspapers, novels and biographies, and by singers, songwriters and playwrights.

But of all the ways of telling the story of a nation, none are shouted out as powerfully as the history told by its monuments, or by the names adorning its buildings and bridges, or by the faces emblazoned on its currency.

That’s because, especially in a democracy, there is a special place reserved for the stories a nation chooses to tell itself, about itself. And that’s why Wednesday’s announcement by Treasury Secretary Jacob Lew that Harriet Tubman’s face will soon grace the front of the $20 bill is so much more than simply great news.

It’s proof that America is finally recalibrating the image it sees when we look in the mirror. It’s a correction slow in coming and long overdue. That it begins with relegating to the back of the bill the face of Andrew Jackson is only another reason to cheer. Jackson was a war hero and a milestone president, but, sadly, he’s also inextricably linked to the shame of America’s inhumanly harsh treatment of Native Americans during his time on the stage.

Tubman played a very different role, and played it far from the halls of power. Like John Brown, she was a fiery abolitionist — but unlike her ill-fated contemporary, she eschewed violence. She served as a union spy during the Civil War, but it was her work as a leader in the Underground Railroad that has left the most poignant legacy. She helped ferry hundreds of slaves out of the South and into freedom.

That she was a woman, and a black woman, helps add color and context to the official story of America, a tale that has for too long been sketched only in paler hues, with men relentlessly in the role of protagonist.

Now Tubman will grace the face of one of the bills most often found in Americans’ wallets and purses. Soon, too, the fives and tens also found there will feature new faces of women on the back, even if Alexander Hamilton and Abraham Lincoln will keep looking out from the front.

Thanks to these changes, the story we tell ourselves, and our children, about ourselves will be richer, fuller and more truthful, now that we have expanded the cast of heroes whose own stories helped forge the nation we call home.

Austerity Reduces Deficit - Hurts Economy

The latest figures from the Treasury Department show the budget deficit has dropped significantly. In August of 2012, the deficit  was about $1.2 trillion dollars (for an eleven month period, running from October through August). But the deficit this year is about 37% lower through August of this year (only about $755 billion). Some might think that's a good thing, and under some conditions it would be.

If the budget deficit was being reduced through an increase in revenues (taxes), or if it was being reduced in the midst of a healthy & booming economy, the drop in the budget deficit would be something to be celebrated. Unfortunately, neither of those things are true. The Republicans won't let the government increase its revenues by raising taxes (even on the wealthy, who are enjoying record income levels and very low taxes). They have insisted that the deficit be reduced through austerity -- cutting government spending, and most of those cuts have been the across-the-board cuts from the sequester.

These austerity measures have taken money out of the pockets of hurting Americans, and that has reduced spending by the public (which takes money out of the economy in general -- reducing demand and depressing the job market). That reduction in demand and depression of job creation has contributed to keeping our sluggish economy from recovering. In other words, the Washington politicians have done the wrong thing for an ailing economy. Instead of giving it a shot in the arm with more spending (paid for with more revenues), they have cut spending and further damaged the economy.

A recession (which most Americans are still mired in) is never cured by cutting government spending. Spending cuts will only work in a healthy economy that can absorb the cuts. An economy trying to recover from a recession must be spurred on by increased spending (spending which will circulate through the economy, increasing demand and job creation). Sadly, our politicians are either too stupid or too greedy to understand that -- and that means it will be a lot longer and more difficult to recover fully from the recession.

The Trillion Dollar Coin Option

(The image above is from the website capitalnewyork.com.)

It seems certain that the House Republicans are going to shut the federal government down by refusing to raise the debt ceiling limit -- unless the Democrats (and President Obama) cave in and let those Republicans make draconian cuts to programs needed by children, the poor, the unemployed, and the elderly (including benefit cuts to Social Security and Medicare). The president has said he will not agree to that, and it is extremely doubtful the Republican cuts could even clear the Senate.

That means the United States is once again looking at the possibility of Congress forcing the government to default on its debts. When this happened last year, the government had its credit rating downgraded and lost millions of dollars -- and it could be even worse this year, since the Republicans seem even more willing to shut things down for an extended period of time (and are saying they will not compromise on their demands).

Since agreeing to the hard-hearted demands of the House Republicans is unthinkable (since it would not only hurt already-hurting Americans, but would damage the economy further by shrinking the amount of money circulating through it), liberals are trying to come up with some options that will avoid the fight over raising the debt ceiling limit. One option some have proposed is for the president to claim a constitutional privilege to ignore the debt ceiling (since the Fourteenth Amendment says the U.S. government cannot refuse to pay its debts). This would involve a legal fight that would end up in the Supreme Court, and considering the conservative lean of the current court, no one can be sure how that would come out.

But their is another option -- one that takes the word weird to new heights. Rep. Jerrold Nadler (D-New York) is proposing the Secretary of the Treasury mint a single platinum coin in the denomination of $1 trillion and deposit that coin in the government's account. That action would make the debt ceiling fight moot, since the government would then be a trillion dollars under the debt ceiling limit.

I'm sure that some of you are probably saying at this point that the coin couldn't be worth a trillion dollars since there wouldn't be a trillion dollars worth of platinum in it -- and you would be partially right, because the amount of platinum it would take to make the coin could be bought for far less. But consider the $100 bill. It is nothing more than a piece of paper with some printing on it, and that paper is not worth anywhere near a hundred dollars.

United States money does not get its value from what it is made out of, but from the trust of the people that the money is worth what the government says it is worth (and that the government will stand behind that designation of worth). In plain language, U.S. money is worth what the U,S. government says it is worth, and if the government issues a trillion dollar coin, then that coin is worth a trillion dollars.

Others may be thinking that it would be illegal for the Secretary of the Treasury to mint a coin in a trillion dollar denomination, but they would be wrong. A few years ago, the congressional Republicans gave the secretary that power (over the objections of the Democrats). The purpose of doing that at the time was to give the United States some leverage in the platinum bullion market (and it worked), but the law did not limit the denomination of the coins the Secretary could issue or the purpose for doing that. And the Secretary of the Treasury at the time the law was passed says he believes the issuance of a trillion dollar coin would be legal. Here is what that law says:

subsection (k) of 31 USC § 5112 "Denominations, Specifications, and Design of Coins"

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

Now Rep. Nadler doesn't think the coin would actually have to be minted. But he does think the threat of minting such a coin would give the president needed leverage in the ridiculous debt ceiling fight. And minting the coin would not give the president the right to spend any more money. The president, by law, can only spend the amount of money he is authorized to spend by the U.S. Congress -- not more and not less than the amount authorized by Congress. That in itself shows just how ridiculous the debt ceiling fight really is -- since it means the Congress would be refusing to let the president spend the money that Congress ordered him to spend.

The truth is that the idea of minting a trillion dollar coin is ludicrous -- but no more ludicrous than having a debt ceiling on spending that Congress has authorized. What should really happen is that Congress should pass a law that would outlaw both the debt ceiling and the trillion dollar coin. Then Congress should get down to the real work of passing a reasonable budget -- one that would raise revenues, make budget cuts, and protect Americans who are hurting the most (including those who depend on Social Security and Medicare).

But that would make sense, and making sense was not something the 112th Congress was capable of doing -- and its starting to look like the 113th Congress will be just as ridiculous and incompetent as its predecessor.