I think that this thread has run about as far as it can in FQ. Moving to P&E.
Why abandon the thread just as the facts are being given? Look at some of the quotes from that article.
Before Donald J. Trump became president and after, his exceedingly complex and voluminous tax returns came under regular scrutiny by the Internal Revenue Service. The number of agents assigned to the audit team: one.
After he left office, the I.R.S. said it was beefing up the audit team, to three. The tax agency itself acknowledged that it was still overwhelmed by the complexity of Mr. Trump’s finances and the resistance mounted by the former president and his sophisticated army of accountants and lawyers, which included a former I.R.S. chief counsel and raised questions early last year about why even three revenue agents should be assigned to audit him…
“This return has about 400 flow-through returns reported on Schedule E and, since some of these are tiered, report a total of about 500 flow-through returns,” the auditor said.
Underscoring the need for more resources, the memo went on to say that to “do a thorough review of these returns, we would need a team much larger than the current team.”
It’s not simply Trump, of course.
[T] he committee reports released this week highlight how depleted the I.R.S. has become in the last decade, as Republicans starved it of funding. They also show how the agency has become increasingly unable to crack down on wealthy taxpayers who push the legal limits to lower their tax bills and have the means to fend off audits if they get caught. [bolding added]
Note that this is not an opinion piece; it’s a front-page news article. Why is the IRS allowing the rich to amass $7 trillion in unpaid taxes? Republicans.
Republicans have for years accused the I.R.S. of political bias and unfairly targeting conservatives. For that reason, they have fought to cut the agency’s funding or, in some cases, called to abolish it altogether. …
Can we do something? We have, but the Republicans are going to crush it.
The Treasury Department, which oversees the I.R.S., is planning to use some of those [Inflation Reduction Act] funds to hire more auditors who can tackle complicated tax returns. …
[Ted Cruz said] “I think we ought to fight an epic, knock-down, drag-out fight over stopping the Democrats from funding 87,000 new I.R.S. agents to harass and intimidate and persecute Americans and their political enemies.”
This is the answer to the OP. Republicans have been systemically gaming the system for decades. (I’m sure some Democrats have colluded, but nowhere near the same extent.) The IRS could work. It could hire more people to do audits. It could even hire more people to answer phones for ordinary people without tax accountants, which is where most of those new IRS agents are supposed to go. But Republicans don’t want any of that. It makes for a better enemy who is secretly working for their side.
I personally would like to see a lot of currently-deductible things made non-deductible. That would streamline the tax code, and produce more revenue without raising the official rates.
But CPA’s, tax lawyers, and tax preparation companies have an interest in retaining the current system.
Such as? Give us a list that would not harm the middle class taxpayer, which is pretty screwed by the current (trump) tax code.
I think the vast majority of us aren’t able to itemize anymore. With a standard deduction of $25,900 for a couple, you need your mortgage interest + property tax + state and local taxes to exceed that in order to itemize. I don’t come close and haven’t itemized for years.
Or medical expenses. As it turns out, that’s been the big issue for me over the last few years. Mainly because my health insurance premium (which is deductible) is horribly high. A few years ago I spent around $25,000 just on medical insurance. (I’ve got it somewhat under control by switching to Obamacare.) Also, I’ve had to spend thousands of dollars on my kid’s braces.
Per random googling, the change dropped itemizers from 30.9% to 11.5%. I’m assuming that’s percentage of returns filed.
We max out SALT, at 3.25% APR aren’t paying all that much mortgage interest even with DC home prices, and only itemize now due to charitable donations.
Seems like donations might be ripe for audits.
I’m surprised it’s that high a percentage that itemize. I suppose single homeowners might get past the $12,950 standard deduction between mortgage interest, property tax, and state tax. It’s a little tougher for married couples to hit $25,900 unless their property tax and/or income is quite substantial.
It’s especially hard because of the limitation on state and local taxes - I could get past the $25,900 if I could deduct all my state and local taxes and my mortgage interest. But I’m limited to $10K in deductions for state and local taxes although I pay around $20K.
As @doreen mentions, SALT is capped, so a capped couple* with no other deductions would need $15,900 in mortgage interest to break even itemizing. Which isn’t hard to hit with a new mortgage today. Borrowing $250k will do it whereas it used to be twice that.
*Hellooo marriage penalty
OP here. There’s an article in the current New Yorker that proposes some remedies for the IRS’s negligence in going after rich people’s tax returns.
In 2021 I had over $35,000 in medical expenses, and we weren’t even particularly sick. Lately, that’s been the key figure in itemizing.
(If you’re wondering, health insurance premiums is a good chunk of that amount.)
There is no “negligence” as even your cite states- First, we need to strengthen the Internal Revenue Service so that it has the capacity to hold accountable serial tax avoiders like Trump and to deter would-be imitators.
The IRS did not have the staffing capacity to “go after rich people tax returns.” The GOP spent many years making sure of this as they crippled the IRS with huge budget cuts.
We also know that, between 2010 and 2020, Congress reduced the I.R.S.’s budget by more than twenty per cent in inflation-adjusted terms, the number of people in the agency’s enforcement division fell by almost a third, and the rate at which rich taxpayers were audited dropped by more than two-thirds.
But House G.O.P. members, some of whom want to abolish the I.R.S. entirely, have already indicated their desire to rescind the additional funding. With Democrats controlling the Senate, that proposal has no chance of becoming law, but the threat from Republicans won’t end there. “When the debt ceiling comes up, they could hold up the entire country to reverse the eighty-billion-dollar increase,” Rosenthal warned.
First thing the new GOP congress does-
The Republican proposal to eliminate billions of dollars in IRS funding will pile more than $100 billion onto federal deficits, according to a new estimate from Congress’s official budget scorekeeper.
The bill, which is slated to hit the House floor Monday night as the first legislative act of the new GOP majority, would claw back most of the almost $80 billion in new IRS funding provided under the Democrats’ massive climate, health and tax package, which was signed by President Biden last year… The Congressional Budget Office (CBO) estimated Monday that the legislation would cut federal spending by $71 billion, but would reduce tax revenue to the tune of almost $186 billion. The net effect would be a $114 billion increase in deficits over the next decade.
There’s nothing wrong with tax avoidance.
That is out of context. Fix it please.
You’re not in any position to tell me to “fix” anything.
But I am.
This will be a warning for you for quoting other posters very out of context to start a thread hijack.
I’m also instructing you to stop posting in this thread.
As you’ve been specifically instructed to stop hijacking threads, I’m bumping this up to the Modloop for possible suspension. This happens far too often with you. You need to avoid starting hijacks going forward.
Let’s be clear here about terminology:
“Tax avoidance” is a term of art for arranging your affairs in ways that are fully legal but minimize taxes. And are fully legal even if pursued for the sole and deliberate purpose of tax minimization.
“Tax evasion” is arranging your affairs in ways that are illegal and serve to reduce the taxes you apparently owe. Or simply faking the numbers altogether and so paying less than you actually owe. Or simply refusing to file or refusing to pay. All those are illegal.
The majority of what e.g. Trump does are probably well out into the sea of “evasion”, far out of sight of the dry land of “avoidance”.
It is certainly true as a general matter that the richer and more complex your business / income life, the greater the opportunity for, and the greater the temptation for, both legit avoidance and illegit evasion.
Having been through a few (dozen) audits for companies where I’ve been an employee, this is not nearly as clear cut at it might seem.
There are lots of arrangements that are NOT valid tax avoidance schemes because they fail tests of form vs substance. The legal equivalent of two people agreeing that the tail of a dog is a leg.
These things take a lot of resources to challenge.