The nonpartisan Congressional Budget Office reported this month that the U.S. has a huge tax gap – tax revenues owed but unpaid. Recent Harvard University research estimates that 70 percent of the gap, approximately $266 billion a year, is due to the top 1 percent not paying what they owe. And that estimate might be low.
How did this happen? There has always been a gap, but the tax gap increased greatly since conservatives, including Wisconsin’s 7th Congressional District Representative Sean Duffy, made cuts to the Internal Revenue Services’ enforcement budget. Because of those cuts, there were fewer audits of the rich and big corporations.
The Treasury Department estimates increasing IRS enforcement investments would directly generate $6 for every $1 spent, and the indirect effect from deterrence would be at least three times that, meaning a return on investment of $24 for every $1 invested.
A recent Tax Justice Network study shows that multinational corporations operating around the world shift over $1 trillion in profits to tax havens each year, thus denying governments of $330 billion in taxes. The U.S. loses an estimated $60 billion a year because of corporate tax evasion schemes. Wealthy individuals also use offshore tax-avoidance maneuvers.
What is the current administration doing about the tax gap? The Justice Department’s prosecution of criminal IRS cases dropped 66 percent in the last five years. The 2017 Tax Cuts and Jobs Act encourages U.S. businesses to shift profits offshore. The administration is rolling back rules intended to discourage corporate inversion, a tactic where companies incorporate offshore to avoid taxes. Companies that already took advantage of the inversion trick could qualify for Federal Reserve bailouts due to provisions in the administration’s coronavirus legislation.
Lawmakers know how to fix this, but most lawmakers depend on donations of wealthy individuals and corporations – those gaining the most from slipshod tax enforcement and offshore tax evasion – so nothing gets fixed.
Ask candidates running for office this fall where their priorities lie, in protecting the interests of their big donors, or in changing tax policies and investing in IRS enforcement to ensure corporations and the rich pay the taxes they owe.
Jeanne Larson of Phillips
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