The very richest Americans have even less to fear from the IRS

Subject to audit?
Subject to audit?
Image: AP Photo/Keith Srakocic
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Shrinking budgets and staff at the Internal Revenue Service means the US’s tax collector is auditing returns at the lowest rate in more than 15 years, according to new data released by the agency today. For America’s wealthiest families—families with adjusted gross income of more than $10 million—audit rates were at their lowest since records began in 2008, at 6.66%, less than half the rate of last year. Households with incomes between $5 million and $9.9 million had an audit rate of just 4.2%, down from 8% last year.

Just over 16,000 tax returns reported an income of over $10 million, according to the most recent IRS figures, while a further 408,000 households reported income of between $1 million and $5 million. They constitute the top 0.6% of all US earners, with the top 1% of earners making somewhere between $200,000 and $500,000 annually.

It’s these people, Senate Democrats argue, who are reaping the rewards of an emaciated IRS budget, while those at the opposite end of the scale receive unfair scrutiny. “Republicans in the Senate and the House have been very much geared towards a policy that has produced lots of poor people being audited and lots of well-off people basically getting off the hook,” Oregon senator Ron Wyden told the Wall Street Journal.

There are good reasons to audit the wealthy. They have more to hide (and to pay) and are much more likely to avoid paying taxes. Studies suggest that the top 0.5% account for more than 20% of the US’ underreported income: about $50 billion of taxes unpaid per year. As of 2016 IRS estimates, the total “tax gap” is $458 billion a year. With fewer audits and less resources, that number is now likely to be much higher.

If the data makes the IRS look bad, that’s sort of the point: The release comes in the midst of long-fought battle with Congress for more funding, with a view to boosting the agency’s staffing and technology. But Senate Republicans who oversee the IRS question the value of “throwing money at the wall because the bureaucracy says we need more,” according to the Journal report. “I’m not averse to beefing up their budget a little bit but I want to see results,” said John Kennedy, a Louisiana Republican.

While electronic filing technology has eliminated many of the IRS’ running costs, 2011 spending cuts seem to have hit hard: this year’s budget is smaller than 2000’s and 19% below a funding peak in 2010, according to the Government Accountability Office. IRS staffing has fallen 21% since 2010, with auditors in particular down almost 40%.