OUCH!: Dodging the IRS

Public Campaign. Posted April 1, 2000.

Worried about getting audited, now that you've filed your tax returns? According to researchers at Syracuse University, you're now more likely to be investigated by the Internal Revenue Service if you're poor than if you're rich. Just 1 in every 87 taxpayers making over $100,000 were audited last year, compared to 1 in 74 of those making less than $25,000. This skew was even more pronounced if you're in business for yourself. The IRS was twice as likely to audit a business with less than $25,000 in sales, compared to those with more than $100,000 in sales.The rich used to be ten times as likely to be audited as the poor, but those days are over, ended by a Congress dependent on campaign contributions from an elite group of givers who are disproportionately wealthy. As the authors of a ground-breaking 1998 academic study of individual congressional campaign contributors (conducted with the help of the Joyce Foundation) wrote, "congressional donors are overwhelmingly drawn from the most powerful and affluent groups in American society." Twenty percent of them make more than half a million a year. Eighty-one percent make more than $100,000 a year -- compared to just six percent of the general population. And these donors have a clear agenda when it comes to their own wallets. For example, a solid majority of donors to congressional candidates wants their taxes cut, "even if it means reducing public services," the Joyce study found. Congress has responded in part by cutting the IRS's budget, reducing the agency's employees by about 15 percent at the same time that the number and complexity of many returns filed has risen. Congress has also done little to crack down on the mushrooming number of bogus tax shelters devised by law firms and accountants and sold to big corporations as a way to dodge billions in taxes. (Only one company, the giant Ernst & Young accounting firm, shows up among the top five donors to both Al Gore and George W. Bush's presidential campaigns. Ernst & Young is a leader in devising and marketing tax shelters to big companies.)At the same time, congressional Republicans have focused their attention on potential abuses of the earned income tax credit, a program that assists the working poor. According to The New York Times, "the intensified focus on low-income taxpayers resulted from pressure on the IRS beginning in 1995," when then-House Speaker Newt Gingrich and others proposed to sharply reduce the credit. This prompted President Clinton "to counter with a plan to bolster audits [of the working poor] to reduce fraud and mistakes."The working poor don't make many campaign contributions compared to big business; nor do they get many opportunities to hobnob with presidents and congressional leaders. And thus it's little surprise that while the corporate tax burden has dropped from 26 cents of every dollar paid in 1990 to 20 cents in 1997, the individual burden has risen from 13 to 15 cents per dollar collected. OUCH! is a regular bulletin on how private money in politics hurts average citizens, published by Public Campaign, a non-partisan, non-profit organization devoted to comprehensive campaign finance reform.

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