The IRS could recover $12 for every $1 spent on scrutinizing the ultra-wealthy's taxes
The IRS could recover $12 for every $1 spent on scrutinizing the ultra-wealthy's taxes
America's highest earners are pretty adept at not paying the taxes they owe. Scrutinizing them could yield a lot more revenue for the public.
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Could seems to be doing some heavy lifting here. What are you deriving that from?
They find that while it's much more expensive to audit the wealthiest tax payers, it's still a hearty return on investment. Auditing the top 1% yields $4.25 per dollar spent, and that number soars to $6.29 when auditing the top 0.1%.
Top 1%: $4.25 yield per $1
Top 0.1%: $6.25 yield per $1
What do these points actually mean?
What is the top one percent household income in the US in 2022?
In 2022, the threshold for a household to be top 1% was $570,003 in earnings.
Sure, that's hard to do by all standards, even silicon valley. The article goes out of its way to highlight the Top 1% and above are "adept" at evading taxes.
But what's this about Top 10%?
Summary bullet-point:
Economists find that every extra dollar spent on auditing the top 10% of taxpayers yields $12 in revenue.
Content:
And pouring even just a bit more money into auditing the rich could yield a lot more revenue, with every additional dollar yielding up to potentially $12 in revenue from the top 90th percentile of earners.
So, they really mean Top 10%.
Top 10%: $12 yield per $1
Weirdly enough, the article does not speak to this group beyond potential profit. No mention of tax evasion, no mention of avoidance, just profit. One must assume it's much easier to squeeze that ~33.2 million people (10% population) million via audits.
What does top 10% actually mean?
What was the top 10% household income percentile in 2022?
The threshold to be in the top 10% of household incomes in 2022 in the United States was $212,110.
That's... a bit odd. 212k household is pretty easy to do even here in Des Moines for any two professional or STEM earners.
Per SoFI, the average salary in the US is $60,575. Double that to approximate household and you're at $121,150. If we shift to median to help rule out outliers, $56,420/$112,840.
With a median of $112, it's hard to see how "top 10%" is only double. This screams of an outsize "middle" range. Shift back to the DQYDJ page and the chart shows exactly that: roughly linear scaling from the 10% mark up through 90%, with a severe spike at 99%.
It's quite clear something is up with the >=99% spike, worthy of audits and scrutiny.
The callout of 10% - despite significant drop in household earnings - makes a person wonder when the focus will shift to 15%, then 25%, etc. We've left the land of clear problem and seem to be opportunistically extracting revenue at that point.
First of all, I really appreciate you breaking down the article and the numbers like that. I can tell you spent time and effort on it, and it really helps put things into perspective.
Now, I'm going to vehemently disagree with the point you were getting at.
Weirdly enough, the article does not speak to this group beyond potential profit. No mention of tax evasion, no mention of avoidance, just profit. One must assume it's much easier to squeeze that ~33.2 million people (10% population) million via audits.
The only way for the IRS to "profit" is by going after people who should have paid $x in taxes, by law, but instead paid less than $x. By definition, they had to be avoiding paying their legally required share of taxes. Some on purpose, some by accident. The IRS is not going to go to a taxpayer and say "well, according to tax law you owe $23,819.25 for the fiscal year in taxes, but we want to profit so instead we're going to force you to pay $30,000." That's just not how taxes work. These people didn't pay what they owe.
I am fine with the top 100% of taxpayers being audited and forced to pay what they owe in taxes.
Just pay your taxes and it won't be an issue at all, regardless of where you fall on the income spectrum. It's a simple concept. Pay your taxes.
Now, I’m going to vehemently disagree with the point you were getting at.
The only way for the IRS to “profit” is by going after people who should have paid $x in taxes, by law, but instead paid less than $x. By definition, they had to be avoiding paying their legally required share of taxes. Some on purpose, some by accident. The IRS is not going to go to a taxpayer and say “well, according to tax law you owe $23,819.25 for the fiscal year in taxes, but we want to profit so instead we’re going to force you to pay $30,000.” That’s just not how taxes work. These people didn’t pay what they owe.
If we had a straightforward tax system where it was possible for a mere mortal to know, with confidence, exactly what was due, I would agree. We do not.
My point was that there was no call-out for "top 10%" not paying taxes, or otherwise evading taxes. There was for 1%/0.1%. The implication is the IRS would be extracting profit from those not intentionally evading taxes, instead those who - by all available indications - are already trying to do their part.
That should be concerning.
If that does pan out and isn't paired with a serious simplification of tax code, we're going to see a handful of things:
- Resurgence of the tax preparation industry and direct padding of Intuit's pockets
- Immense political blowback, the last thing blue team can afford
- Further compression of the working class from this additional burden
But, the article really doesn't go into that "10%" and I hadn't found much reference in the study either, so... we'll see.
Trying to do their part is great, but they're still required to pay $x and are paying less than $x. Everyone needs to pay their taxes. It's not a radical concept.
And I have my doubts that they're trying to do their part. Small business owners in particular are chock full of tax evaders.
And again, my point is that the vast majority of people are, as far as they are aware, already paying everything they are required to pay. That, too, isn't a radical concept.
I'm interested in where you thing small business owners lie in this spectrum of household income thresholds. Business would imply some form of incorporation - even llc or s-corp - and would be a matter of business taxes, not personal taxes. The only way this could even be relevant is if you think they're trying to blanked pass-through that income on their own personal return, which would be... ill-advised, to such a degree it is most certainly not in that >=10% income range.
The only way this could even be relevant is if you think they’re trying to blanked pass-through that income on their own personal return
I see you've never known any small business owners.
my point is that the vast majority of people are, as far as they are aware, already paying everything they are required to pay.
Again, that's great and all, but they're not paying it.
If I walk into a private building because I didn't see the "no trespassing" sign, I think it's fair to not arrest or prosecute me for a simple misunderstanding. But I still have to leave.
Pay your taxes. That's all.
I see you’ve never known any small business owners.
I've been one and know a few others.
Again, that’s great and all, but they’re not paying it.
If I walk into a private building because I didn’t see the “no trespassing” sign, I think it’s fair to not arrest or prosecute me for a simple misunderstanding. But I still have to leave.
Pay your taxes. That’s all.
Frankly, at this point, I can't tell if you're just being intentionally obtuse.
As previously stated: If we had a straightforward tax system where it was possible for a mere mortal to know, with confidence, exactly what was due, I would agree. We do not. This would be a bit like having a "no trespassing" sign not plainly posted and trying to bust someone for it despite their best efforts to respect them. It's borderline entrapment and will only serve to rile people up.
I'm not contending that one should not pay the taxes due. I'm contending that one paying the "amount due" to the best of their and their preparer's knowledge could be subject to minutia raised through an audit despite their good-faith efforts to pay the "amount due" as was presented.
You seem to be operating under the absolute certainty literally everyone filing taxes is doing their damnedest to evade taxes to the maximum amount possible, which is absurd. The vast majority of us just want to not have the IRS on our asses.
To summarize, we are paying our taxes. That's the problem.
To summarize, we are paying our taxes.
No, you're not. You think you owe $10, but you actually owe $12. It's not your fault, it's just a misunderstanding of a complicated tax code, but you still owe it. You can't just not pay it.
This would be a bit like having a “no trespassing” sign not plainly posted and trying to bust someone for it despite their best efforts to respect them.
No one is trying to bust anyone. This is just informing them of the property line and asking them to please leave. You're suggesting people should be allowed to continue trespassing because they thought it was public land. Doesn't work that way.
And yes, that sign should be more clearly posted. That's absolutely true. But it doesn't change the law.
If you didn't pay all your taxes, you have to pay the rest of them, even if it was an accident. No one is talking about penalties or fees, just paying the original owed amount.
No, you’re not. You think you owe $10, but you actually owe $12. It’s not your fault, it’s just a misunderstanding of a complicated tax code, but you still owe it.
Yes, we are. There is no scenario where taxes are not being paid. We are, in fact, going out of our way to pay taxes. It is not effort-free.
We "think we owe $10" based on a good-faith effort to fill out the forms, run the tallies, and submit what total shows.
You can’t just not pay it.
And people are paying, by and large.
No one is trying to bust anyone. This is just informing them of the property line and asking them to please leave. You’re suggesting people should be allowed to continue trespassing because they thought it was public land. Doesn’t work that way.
To borrow the analogy once more, informing them the property line is acktchually a few yards away from what both the general public, the authorities, and the attourneys all believed it was, discovered through an exhaustive and expensive effort to ensure every single person ever in the jurisdiction isn't overstepping the property line, resulting from what was an effort to ensure habitual, egregious trespassers were dealt sirh
No one is going to be happy with this outcome, and those responsible will be earning much ire.
I'm not at all suggesting people should continue trespassing. I'm highlighting exactly what I said: It’s borderline entrapment and will only serve to rile people up.
And yes, that sign should be more clearly posted. That’s absolutely true. But it doesn’t change the law.
It does, however, greatly impact many lives and, as a downstream impact, the political climate.
If you didn’t pay all your taxes, you have to pay the rest of them, even if it was an accident. No one is talking about penalties or fees, just paying the original owed amount.
There is no scenario where taxes are not being paid.
The only way for the IRS to recover money is for people to have not paid the taxes they owe. Likely on accident, but still.
By definition, taxes were not paid.
To borrow the analogy once more, informing them the property line is acktchually a few yards away from what both the general public, the authorities, and the attourneys all believed it was, discovered through an exhaustive and expensive effort to ensure every single person ever in the jurisdiction isn’t overstepping the property line, resulting from what was an effort to ensure habitual, egregious trespassers were dealt sirh
And this is a bad thing how? Now we know where the property line is and we have more security/police to remind people to stay off it. Who would be angry at that? The property line didn't change, it just got clarified.
will only serve to rile people up.
I'm going to put this bluntly: fuck em. Pay your taxes. The only people mad at this are people who support tax evasion, which is a large amount of people.
You're mad about paying taxes? Fuck you, pay your taxes. It makes my life worse when your greed steals money from our government.
The only way for the IRS to recover money is for people to have not paid the taxes they owe. Likely on accident, but still.
Which does not change that these people are paying money to the IRS representing their - and any preparer's - good-faith effort to follow the IRS' labyrinthine code, a thing you seem to pretend isn't happening.
By definition, taxes were paid, until such a time as zero dollars are transferred, and by benefit of the doubt, the amount was everyone's best understanding of the amount due.
The best argument you can make is the IRS independently, at a later date, came to a different conclusion regarding the amount due and is holding someone liable for the increased amount.
And this is a bad thing how? Now we know where the property line is and we have more security/police to remind people to stay off it. Who would be angry at that?
Are you seriously asking how the concept of entrapment is bad?
The property line didn’t change, it just got clarified.
And yet again, its "clarification" was a deviation from everyone's long-running understanding of where it was.
I’m going to put this bluntly: fuck em. Pay your taxes.
I'm going to put this bluntly: Don't be dumb. They already are.
The only people mad at this are people who support tax evasion, which is a large amount of people.
You’re mad about paying taxes? Fuck you, pay your taxes. It makes my life worse when your greed steals money from our government.
Is it truly so inconceivable to you that people could be rightfully-pissed about potential future liabilities resulting from an incomprehensible code despite their best attempt to follow said code and continue to do as they already are and pay their taxes?
Do you truly believe a good-faith effort to pay one's obligations is somehow "greed" or "stealing ... from our government"?
How incredibly narrow-minded.
Lets be honest, politicians want to seem like they are going after the ultra wealthy without actually going after the ultra wealthy, because they are either ultra wealthy themselves, or their donors / friends are.
We've known for decades that its the 99% vs the 1%
As a separate point, I agree that the headline is being somewhat disingenuous by calling the top 10% "ultra wealthy". $212,110/yr is still much more wealth than most Americans could ever dream of having, but it's not "ultra wealthy". Just "wealthy" or "very wealthy" imo.
But again, it doesn't matter whether you're "wealthy", "very wealthy", or even "not even wealthy at all". Pay your taxes.
$212,110/yr is still much more wealth than most Americans could ever dream of having, but it’s not “ultra wealthy”. Just “wealthy” or “very wealthy”
Entirely disagreed. Even in Des Moines, Iowa, it's well within the reach of literally any two individuals pursuing IT or other similarly-skilled positions. It's much easier in dense population centers.
Let me get this straight. You don't consider 3 or 4 times the national median household income "wealthy"? National median household income is about $62k.
It's pretty rare for a couple to have two specialized degrees like what you're mentioning.
I'm in IT with no degree. It's not hard to do.
I do not consider merely 3x median household as "having a great deal of money, resources, or assets; rich", no.
In the current economy, I'd consider it the bare minimum necessary to, say, afford a single-family home built in the last 50 years.
I'd consider it enough to pay off student loans, to afford a couple well-used cars - and their payments, to afford daycare - enabling starting a family, etc.
I'd consider it enough for both earners to be able to set aside savings for future earmarked uses e.g. home repairs, retirement, etc., so long as they maintain consistent employment.
I would not consider it either actively at, or enabling future qualification of "having a great deal of money, resources, or assets; rich". You could argue it's at a threshold enabling saving for a rainy day, but there's no way it's going to facilitate mass asset acquisition, building a fuck-you-sized cash reserve, etc. That bracket's money isn't making them money; that bracket is just as dependent on having a job.
Alternative question: Do you feel that a household making the median income as "poor"?
Alternative question: Do you feel that a household making the median income as “poor”?
Quite likely, yes.
If I plug the median (~$62,000) into an income tax calculator and select Iowa to include state tax, the effective annual household income is ~$50k.
The average mortgage payment as of 2023 (and yes, it should be median ideally, but that wasn't available) is ~$2,300 per lendingtree.com.
~50,000 - (12 * ~$2,300) = ~22,400 annual remaining.
Playing a bit of hearsay with nerdwallet (and their referenced Experian), the average used car payment as of 2023 is $516/month. If we assume our average family is paying for a car...
~22,400 - (12 * ~$516) = ~16,208 annual remaining, or ~1,350 per month... for the entirety of utilities, interest payments, groceries, clothes, school-related/extracurricular (for any kids), daycare, etc.
But let's look at it from the other side - if we don't assume these averages, here's what your median household is looking at.
~50,000 / 12 = ~$4,166/month... for the entirety of mortgage, any auto payment, any fuel/maintenance, any home improvement/supplies/maintenance/repairs (hope that water heater doesn't go), any groceries, any utilities like water, gas, electric, internet, cellular, any day care costs, any costs of kids education / extracurricular activities, etc. This is expected to somehow cover 2+ people.
Yes - I'm pretty confident in stating that the median household income is likely to be lacking sufficient money to live at a standard considered comfortable or normal in a society. Or, if poor is to be directly compared to wealthy, I'd say they're exceedingly unlikely to manage having a great deal of money, resources, or assets; rich.
I feel attempting to tie concepts such as poor and wealthy to arbitrary points of income is largely futile, as the real indicator would be the relative ability of a household to cover average/expected expenses and save/amass cash.
That previous "top 10%" benchmark of ~$210,000 will be pulling ~$153,000 annual/$12,750 monthly after taxes. Subject it to the same considerations- average mortgage, average car payment, etc. - and they're looking at $119,200 annual/$9,900/month.
I'd say they're much less likely to be in the situation defined by poor - factor in the entire gamut of expenses and they'll still have some discretionary income - but they're also not at the point of qualifying as wealthy. At best, they'd be able to retire more comfortably.
Compare this to, say, the $995,000 pre-tax / $593,251 after-tax annual / 49,437 after-tax monthly of the 1% margin and that... changes. The relative gap between the entire gamut of usual expenses and actual monthly income is immense; wealth aggregation is almost unavoidable.
That's wealthy.
Edit: Per latest Census Bureau data, the median household income in the US is ~71,000, compressing the gap between them and that "top 10%" a bit.