Trump And Musk Are Making It Easier For The Rich To Evade Paying Taxes

 

The following is part of an excellent post by economist Paul Krugman:

 All good Americans will pay the taxes they owe. Not so good Americans, on the other hand, will pay less than they owe, hoping to get away with it. And their odds of getting away with tax evasion this year are a lot higher than they were last year, thanks to Donald Trump and Elon Musk.

While we won’t have hard numbers for some time, it now seems likely that the “tax gap” — the difference between what taxpayers owe and what they actually pay — will surge by hundreds of billions of dollars. Why? Because tax cheaters believe that the I.R.S., devastated by DOGE-directed layoffs, will lack the resources to detect and crack down on tax fraud. . . .

One agency that has been singled out for especially severe cuts is the Internal Revenue Service, which has already laid off thousands of employees. And that’s just the beginning: The Trump administration is reportedly seeking to cut the IRS work force in half. This would cripple the agency’s ability to conduct audits and discover fraud.

And preliminary indications are that widespread belief that a damaged IRS won’t be able to police tax evasion is already undermining federal revenue.

Last month the Washington Post reported that

Senior tax officials are bracing for a sharp drop in revenue collected this spring, as an increasing number of individuals and businesses spurn filing their taxes or attempt to skip paying balances owed to the Internal Revenue Service, according to three people with knowledge of tax projections.

Treasury Department and IRS officials are predicting a decrease of more than 10 percent in tax receipts by the April 15 deadline compared with 2024, said the people, who spoke on the condition of anonymity to share nonpublic data. That would amount to more than $500 billion in lost federal revenue.

That’s a gigantic number. If it’s right, surging tax evasion may do as much or more to add to the national debt as the huge tax cuts Republicans are trying to ram through Congress. . . .

Who will benefit from what looks like a deliberate attempt to make America safe for tax evaders?

Historically the tax gap has been concentrated among high-income individuals, for two reasons. First, ordinary workers get most of their income in the form of wages and salaries, which are reported by their employers, while wealthy people often own businesses or, at the highest levels, can afford to engage in sophisticated schemes, for example using offshore accounts, to hide their income. Second, the income tax is progressive, so a dollar of income concealed by a high earner costs a lot more revenue than a dollar not reported lower down the scale.

In other words, crippling tax enforcement is a stealth giveaway to the 1 percent.

And within the 1 percent, the gains will go to the unscrupulous — wealthy individuals who don’t feel any sense of civic duty and don’t care about the effects on their reputations if they’re caught.

I’d argue that this means that lax tax collection has a moral as well as a financial cost, because it specifically rewards bad behavior. It takes us down the road toward a society where anyone who plays by the rules is a chump — a Leona Helmsley society in which only the little people pay taxes.

Not that pointing this out would deter Trump and Musk. After all, wealthy tax evaders are their kind of people.