National overview
Like the IRS? Then you’ll love Elizabeth Warren’s new tax bill
On March 1, Senator Elizabeth Warren (D., Mass.), Along with representatives Pramila Jayapal (D., Wash.) And Brendan Boyle (D., Pa.), Introduced the so-called Ultra-Millionaire Tax Act of 2021. The bill would impose an annual ‘wealth tax’ on the richest 0.5 percent of all Americans, starting at 3 percent and up to 6 percent. The merits of the tax itself were discussed in detail. What has not been discussed is the new IRS enforcement scheme that the bill would create, which would include a huge increase in the size of the IRS, a significant extension of the IRS ‘already repressive information reporting requirements, and many more audits and collection actions. Let us examine these elements more closely. IRS funding The bill proposes to increase the IRS’s funding by $ 100 billion over the next ten years. To put this in perspective, the budget of the IRS’s FY 2021 is $ 11.92 billion, higher by $ 409 million over FY 2020. Warren’s bill would almost double the agency’s funding for FY 2022 and by 203 almost ten times larger late. stipulates that 70 per cent of the new money should be used for tax enforcement, compared to just 10 per cent allocated for ‘taxpayer services’, such as assistance for submission and education, filing and billing services, and taxpayer advocacy services. Again, for that perspective, the IRS ‘FY 2021 budget allocates $ 2.556 billion for taxpayer services and $ 5.213 billion, or about twice as much, for enforcement activities such as audits, collections, litigation, and criminal investigations. Warren’s bill would give the IRS seven times more money for enforcement than for taxpayer services. This great imbalance betrays the leftist mantra that ‘government is here to help you’. If that were true, more money would be spent on giving people the information they need to comply with the massive tax code of four million words, than on the actual application. Yet spending on maintenance has outpaced spending on education for decades – and Warren would exacerbate the imbalance. While it is naive to believe that enforcement is unnecessary, the fact is that 98 percent of every dollar owed to the IRS is paid without any agency intervening. People are screwing themselves into the ground and working to comply with our massive tax code. In 2019, more than 67 million Americans in some capacity sought some form of assistance from the IRS; only 1,800 were charged with a tax crime. Clearly, the IRS has much more to gain by teaching people to comply than to grind them to powder when they do not. Extensive Information Reporting Requirements As one of the most important tools for IRS compliance, it is ‘information reporting’, which comes from the ‘information records’ that the IRS uses to collect data. Form W-2, which reports the wages paid by an employer to an employee, and 1099 forms that include interest, dividends, independent contractor payments, and so on. Report, are two prominent examples of such ‘information returns’. But there are literally dozens of other forms the IRS uses to collect data so it can verify the income reported on tax returns. The scope of the data is staggering. In 2019 alone, a total of 3,503,499,195 information returns were filed with the IRS. The U.S. population was 328,239,523 in 2019, which means that more than ten information returns for every man, woman, and child in America were submitted to the government in 2019 – not even income tax returns counted. However, according to Warren, this is not enough. Under its bill, the IRS must, within twelve months of its entry into force, draw up a range of new regulations designed to enforce the reporting of ‘any net asset value information’ that the agency deems relevant. The reporting burden may be based on “ownership, control, management, claim of income from or other relation to assets” subject to tax under the law, including “financial institutions, business entities or other persons” with any connection whatsoever to persons liable is for the tax. In addition, business entities owned by persons subject to the tax ‘estimates of the value of the [business] entity itself. And if you intend to avoid the new requirements, the bill further stipulates that the IRS has the power to draft new regulations that are specifically considered “essential to prevent taxpayers from avoiding the purpose of information reporting.” Now a reasonable person can ask if all this data might not just overwhelm the IRS, making the application of reporting requirements untenable. The crowd ‘We are here to help’ also thought about it: the law would order the IRS to develop a comprehensive plan for managing efforts to exploit the collected data ‘to improve compliance efforts, with the stated purpose to address ‘non-compliance’. with such requirements. Increased overall application In 2019, 154.1 million individual tax returns were submitted. Warren’s wealth tax is aimed only at the richest .5 percent of the filers. Do you think the IRS needs a doubling of its budget to handle just 0.5 percent of America’s taxpayers? No, friends, the application of the Ultra-Millionaire Tax Act of 2021 is not just for ultra-millionaires. This is for you. If Warren’s bill passes, you can expect the IRS to employ legions of new auditors and tax collectors who will be unleashed on U.S. taxpayers for the next ten years. As the tax code becomes more voluminous and complicated, more people are making honest mistakes in calculating their taxes. This reality leads to tens of millions of criminal convictions. In 2019, the IRS estimated more than 40 million civil fines. Nearly 33 million were judged against individuals, the vast majority of whom are honest taxpayers caught in tax codes and pitfalls they did not even know existed. Those same people then become the targets of a blizzard of IRS notices and payment claims, and if that fails, eventually tax levies and levies. Ultra-millionaires tend not to have this problem; they can afford to just pay their taxes because they are ultra-millionaires. But when middle-income Americans end up in tax debt, they become enforcement victims precisely because they do not have the money to settle. And that’s the most ominous thing about Warren’s bill: it’s another oppression of the richest Americans, but in reality it’s likely to hit ordinary taxpayers the hardest.