The IRS has a big opportunity to fix the way Americans file taxes

“The IRS desperately needs to put together an easier-to-use, simpler way for people to file their taxes and access benefits free of charge. Accomplishing that, of course, is easier said than done. The IRS has been underfunded for decades and does not have sufficient in-house technical expertise to build a free file system on its own.”

“The actual work of doing your taxes mostly involves rifling through various IRS forms you get in the mail. There are W-2s listing your wages, 1099s showing miscellaneous income like from one-off gigs, etc. The main advantage of TurboTax is that it can import these forms automatically and spare you this step.
But here’s the thing about the forms: The IRS gets them, too. When Vox Media sent me a W-2 telling me how much it paid me in 2020, it sent an identical one to the IRS. When my bank sent me a 1099 telling my wife and me how much interest we earned on our savings account in 2020, it also sent one to the IRS. If I’m not itemizing deductions (like 70 percent of taxpayers), the IRS has all the information it needs to calculate my taxes, send me a filled-out return, and let me either send it right back to the IRS if I’m comfortable with their version or else do my taxes by hand if I prefer.

This isn’t a purely hypothetical proposal. Countries like Denmark, Sweden, Estonia, Chile, and Spain already offer ”pre-populated returns” to their citizens. California experimented with a version called ReadyReturn before it was shut down under pressure from H&R Block and Intuit.”

“Congress needs to authorize more funding for the IRS.”

Where Republicans Are Starting to Worry About Big Oil

“Fracking has also accelerated life on the surface. Some landowners have made millions of dollars from selling the rights to oil beneath their land to major corporations. And struggling agricultural crossroads, including Watford City, the county seat 20 miles southeast of Novak’s farm, have found new life as boomtowns. During the past decade, a new high school and hospital, and housing developments sprawling from Main Street into the prairie, have arisen to serve the more than 10,000 people who have come from afar to work in the McKenzie County oil field.

But installing an industry atop an agricultural zone has brought less-heralded changes, too, including an elaborate system to deal with the saltwater, which is actually a polluted mix of naturally occurring brine, hydrocarbons, radioactive materials and more. Billions of gallons of it are produced by oil drilling and pumping each year.”

“Over the following weeks, industry clean-up specialists dug dirt, built berms and installed pumps to try to decontaminate the pasture and its springs. But nearly three months later, a water sample taken far down the gully, where it broadens into a wetland, contained 149,000 parts per million of chloride — 600 times the advised limit, and a clear indication that saltwater and its dangerous contaminants were still present.

The damage to Novak’s land, while dramatic, isn’t uncommon in the North Dakota oil fields. More than 50 saltwater spills happen each year in McKenzie County, when tanker trucks crash, pipelines leak, or well pads or disposal sites catch fire or otherwise malfunction. Many spills are contained on well pads and at disposal sites. But others drain into fields, farmyards and roadways. Novak worried about his pasture, a water source for cows, deer, pheasants and more. And he feared the cumulative impact of so many saltwater spills in a county that is home to hundreds of streams and springs, and where farmers and ranchers often rely on water wells for livestock and themselves.”

” Today, tax revenues from oil operations make up more than 50 percent of North Dakota’s annual budget. Republican leaders in the state, who hold all federal and statewide elected positions, have continued to push for a carbon-based economy, as North Dakota now depends on oil more than any other state. The North Dakota Legacy Fund, an investment account approved by North Dakota voters to guard some oil tax revenue for future expenses, is worth more than $8 billion. Oil tax revenue from that and other sources has buoyed schools and health care across the state, lowered income taxes for residents, and funded everything from flood containment systems in eastern North Dakota to major highway projects.”

““Sometimes you have a really good company that will clean it up. Sometimes you don’t. Sometimes you don’t ever find out about it,” Jappe said. “I wish saltwater had a little bit more regulation. There just needs to be more accountability.”

Jappe would like the state to require tanker trucks hauling saltwater to carry placards that indicate the toxic load. She would like to see more state health and environmental quality inspectors on site, including some who live and work in McKenzie County year-round, as many now travel from the eastern part of the state for shorter stays.

She is especially concerned about the damage that can come if pipes injecting saltwater a mile underground were to leak. She told me she is not confident underground aquifers, let alone fields and pastures impacted by surface spills, are safe. She worries that residents don’t have enough protection under current oil-field oversight by state agencies that can’t keep pace with development.

“We’re their lab rats,” Jappe said.”

How to make the child tax credit more accessible

“The first of the 2021 child tax credits hit parents’ bank accounts in July — but not for everyone. For many of the parents who need it most, accessing the money may be more of a struggle.
That’s because the IRS — an agency that knows little about the lowest-income Americans, who often don’t file taxes — has been tasked with distributing the money, up to $300 per month per child.

On July 15, the day payments first went out, the IRS said it sent $15 billion to 35 million families, 86 percent of which was sent via direct deposit. That suggests that the vast majority of initial recipients were from families who earned income and filed taxes, many of them middle- or lower-middle-income parents whose names, addresses, and bank accounts are on file from tax returns.

More than 10 million children live in poverty, according to 2019 data from the US Census. Of those, the People’s Policy Project estimates that about 7 million live in non-filing households. (Because these families are, by definition, somewhat difficult to track, estimates vary: The Census Bureau says that 36 percent of children in poverty are from families that did not file taxes in 2019, including 55 percent of children in families in deep poverty.)

Most of these families haven’t signed up to get government stimulus checks, either, effectively leaving thousands of dollars from the government on the table over the past year. The IRS gathered information on an additional 720,000 children in non-filing households where the parents registered to receive stimulus payments.

But that still leaves millions of children whose parents are eligible for the child tax credit (CTC) but who are not on track to receive it.”

““The North Star should be making this as automatic as possible so families don’t have to take affirmative steps to get the support they need.””

Billionaires are racing to sidestep President Biden’s plan to raise their taxes

“The new president wants the rich to pay much more in taxes, in order to finance a $1.8 trillion plan to invest in things like child care, education, and tax cuts for the poor that are meant to reduce inequality.

But standing in the other corner of the ring is a sophisticated wealth management and accounting industry that is ready to fight, eager to temper every aggressive proposal and exploit every loophole to please their clients who pay them big bucks to defend every dollar.

Over the next few months — and over the next few years, if Biden’s plan manages to pass in some form or another — these forces will collide. Passing the tax bill is only the first step. The execution could be harder. No matter Democrats’ intentions, they may find that their plan lets tech billionaires off the hook.

And so the wealth management industry is brimming with a cocksure optimism that they can outsmart the bureaucracy.”

The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax

“how do megabillionaires pay their megabills while opting for $1 salaries and hanging onto their stock? According to public documents and experts, the answer for some is borrowing money — lots of it.

For regular people, borrowing money is often something done out of necessity, say for a car or a home. But for the ultrawealthy, it can be a way to access billions without producing income, and thus, income tax.

The tax math provides a clear incentive for this. If you own a company and take a huge salary, you’ll pay 37% in income tax on the bulk of it. Sell stock and you’ll pay 20% in capital gains tax — and lose some control over your company. But take out a loan, and these days you’ll pay a single-digit interest rate and no tax; since loans must be paid back, the IRS doesn’t consider them income. Banks typically require collateral, but the wealthy have plenty of that.

The vast majority of the ultrawealthy’s loans do not appear in the tax records obtained by ProPublica since they are generally not disclosed to the IRS. But occasionally, the loans are disclosed in securities filings. In 2014, for example, Oracle revealed that its CEO, Ellison, had a credit line secured by about $10 billion of his shares.

Last year Tesla reported that Musk had pledged some 92 million shares, which were worth about $57.7 billion as of May 29, 2021, as collateral for personal loans.”

“after decades of wealth accumulation, the estate tax is supposed to serve as a backstop, allowing authorities an opportunity to finally take a piece of giant fortunes before they pass to a new generation. But in reality, preparing for death is more like the last stage of tax avoidance for the ultrawealthy.”

“Normally when someone sells an asset, even a minute before they die, they owe 20% capital gains tax. But at death, that changes. Any capital gains till that moment are not taxed. This allows the ultrarich and their heirs to avoid paying billions in taxes. The “step-up in basis” is widely recognized by experts across the political spectrum as a flaw in the code.

Then comes the estate tax, which, at 40%, is among the highest in the federal code. This tax is supposed to give the government one last chance to get a piece of all those unrealized gains and other assets the wealthiest Americans accumulate over their lifetimes.

It’s clear, though, from aggregate IRS data, tax research and what little trickles into the public arena about estate planning of the wealthy that they can readily escape turning over almost half of the value of their estates. Many of the richest create foundations for philanthropic giving, which provide large charitable tax deductions during their lifetimes and bypass the estate tax when they die.

Wealth managers offer clients a range of opaque and complicated trusts that allow the wealthiest Americans to give large sums to their heirs without paying estate taxes. The IRS data obtained by ProPublica gives some insight into the ultrawealthy’s estate planning, showing hundreds of these trusts.

The result is that large fortunes can pass largely intact from one generation to the next. Of the 25 richest people in America today, about a quarter are heirs”

ProPublica’s Bombshell Tax Report That Wasn’t

“Despite ProPublica’s best efforts to make the information enclosed within seem damning, the data tell us little we didn’t already know. For the 2018 tax year, the last year for which we have data, the top 1 percent paid over 40 percent of federal income taxes, despite earning just under 21 percent of total adjusted gross income (AGI). The bottom 50 percent of taxpayers earned 11.6 percent of total AGI, but paid less than 3 percent of income taxes. The same story holds when looking at all revenue sources too, so it’s not just the income tax that is progressive.

ProPublica, however, tries to make the case that the wealthy are getting away with murder through the tax code, so they “do a calculation that has never been done before,” comparing growth in wealth over the course of a year to taxable income. They use this to calculate an individual’s “true tax rate,” which is sort of like handing out wins in a baseball game in the middle of the early innings and calling it the “true outcome” of the contest.

It’s hard to overstate how nonsensical this comparison is (which is perhaps why it’s never been done before). Our tax system rightly does not tax growth in one’s wealth until it is realized as income. After all, the alternative is a monstrously complex and unfair system of wealth taxation that developed countries have avoided.

The reason that wealth isn’t taxable is fairly straightforward: You aren’t directly benefiting from it until it’s turned into income (at which point it is taxable). Wealthy Americans may not pay taxes on the growth that their net worth sees, but should they wish to sell assets that have appreciated in value, they would be liable for capital gains taxes on that growth.”

The White House can raise taxes on the wealthy without touching the tax code at all

“President Joe Biden wants to raise taxes on the wealthy to pay for some of his policy proposals. Part of the way he can go about that doesn’t entail touching the tax system at all — instead, he’d just have to put the IRS to work chasing down rich people to make sure they’re paying taxes they already owe.”

“The most recent official tax gap estimate from the IRS, from 2011 to 2013, was that it amounted to $441 billion each year. That’s a big sum already, about 16 percent of total tax liability those years. But there’s reason to believe the gap is much higher — and that wealthy people are often to blame.”

“The IRS’s total budget is down by some 50 percent since 1993 as a share of gross tax collections, and appropriations for the IRS — adjusted for inflation — have fallen by 20 percent since 2010, and after Republicans in Congress sought to curtail its budget. It’s lost thousands of enforcement staff. And its enforcement abilities directly affect revenue, not only by collecting unpaid taxes but also by influencing behavior. If people know that the IRS is going to come after them for skirting taxes, they’re less likely to try it. Rettig told the House Ways and Means Committee at a recent hearing that the number of examining revenue agents, who are tasked with handling complex cases, fell by 35 percent since 2010, and field collection revenue officers, who manage the harder collection cases, fell by 48 percent. The audit rate for millionaires fell from 8.4 percent in 2010 to 2.4 percent in 2019.”

“Biden’s proposal to inject funding into the IRS could go a long way in reviving the agency. Because the IRS’s budget is generally determined year by year, it makes it hard to staff up or invest in technology for the long term. Agents with the experience and know-how to deal with complex audits can take years to train and replace.
“One of the key things in this proposal is not just the money, it’s that it’s a multi-year stream of funding that would allow them to plan it and spend it out over a multi-year period,” Hanlon said.”

Why some of the most liberal Democrats in Congress want to bring back a tax break for the rich

“In their 2017 tax bill, Republicans partially closed a tax loophole that mainly affected higher-income people in high-tax areas — i.e., relatively well-off people in blue states. They capped the state and local tax deduction (SALT) people can take when calculating their federal income tax at $10,000. People can still deduct state and local taxes from their federal tax bill, but only up to that point.

Many Democrats — namely, those from states such as New York, New Jersey, and California — want to repeal the SALT deduction cap and go back to the old regime, where people could deduct all (or at least more) of their state and local taxes. They argue the cap unfairly drives up their constituents’ tax bills, might keep their states from implementing more progressive tax regimes on high-income people, and was a vindictive move by the GOP in the first place.”

“But some Democrats, Republicans, and economists are saying hold the phone.

“The vast majority of the benefits of repealing the SALT cap would go to the people at the very top. It would also be costly — and for that amount, we could finance much more worthy efforts to support American families and workers. We can say we are for a progressive tax code and for fighting inequality, or we can support the SALT deduction, but it is really hard to do both,” said Sen. Michael Bennet (D-CO) in a statement to Vox. When the Senate took up a vote on whether to repeal the SALT cap in December 2019, he was the only Democrat to vote against it.”

The Misleading Push for Corporate Tax Hikes

“A corporation’s book profits are actually an unhelpful metric when it comes to assessing what its tax liability should be. While the tax code is far from perfect, many deductions and credits that reduce liabilities serve an important purpose and help make the tax code fairer. Calculating a corporation’s income before factoring these in makes as much sense as complaining that a kid with a summer job gets to avoid paying regular income taxes because of the “standard deduction loophole.”

For example, consider net operating loss (NOL) carryforwards and carrybacks, one of the most common culprits behind these sensational headlines. These are normal features of a smart policy that allows corporations to pay taxes based on a realistic view of their cash flow over time.

Imagine a start-up business that spends two years developing its feature product, only to release it in the next year. If that business ran a deficit of $2 million the previous two years, then made a $1 million profit the third year, it has not actually made a profit in the long term. Disallowing NOL deductions from being carried forward would mean that the business would face corporate income tax liability despite having, thus far, lost money.”

“NOL carryforwards were one reason Amazon had no federal tax liability when those articles appeared a couple years back. Another was the research and development (R&D) tax credit, long a bipartisan favorite. The Obama administration in 2012 identified the R&D credit as a crucial element of business tax reform, claiming that businesses undervalue R&D in the absence of the credit as the social benefit is far greater. It’s deeply disingenuous to incentivize R&D, then wag your finger when businesses respond to the incentives the R&D credit provides.

Then there’s accelerated depreciation. One of the most positive changes in the 2017 tax reform law was the introduction of full expensing of capital investments, which allowed businesses to bypass the complicated system of asset depreciation that requires them to recoup the value of capital investments over timelines as long as decades. Huffing and puffing that businesses use full expensing to zero out their tax liabilities is absurd, because it merely accelerates tax deductions businesses would receive anyway. In other words, the long-term “cost” of accelerated depreciation in terms of revenue reduction is zero. The difference is that businesses, which prefer cash on hand to cash down the line, are then able to reinvest the value of the deduction immediately rather than waiting years to receive the tax benefit.”

The Misleading Push for Corporate Tax Hikes

“A corporation’s book profits are actually an unhelpful metric when it comes to assessing what its tax liability should be. While the tax code is far from perfect, many deductions and credits that reduce liabilities serve an important purpose and help make the tax code fairer. Calculating a corporation’s income before factoring these in makes as much sense as complaining that a kid with a summer job gets to avoid paying regular income taxes because of the “standard deduction loophole.”

For example, consider net operating loss (NOL) carryforwards and carrybacks, one of the most common culprits behind these sensational headlines. These are normal features of a smart policy that allows corporations to pay taxes based on a realistic view of their cash flow over time.

Imagine a start-up business that spends two years developing its feature product, only to release it in the next year. If that business ran a deficit of $2 million the previous two years, then made a $1 million profit the third year, it has not actually made a profit in the long term. Disallowing NOL deductions from being carried forward would mean that the business would face corporate income tax liability despite having, thus far, lost money.”

“NOL carryforwards were one reason Amazon had no federal tax liability when those articles appeared a couple years back. Another was the research and development (R&D) tax credit, long a bipartisan favorite. The Obama administration in 2012 identified the R&D credit as a crucial element of business tax reform, claiming that businesses undervalue R&D in the absence of the credit as the social benefit is far greater. It’s deeply disingenuous to incentivize R&D, then wag your finger when businesses respond to the incentives the R&D credit provides.

Then there’s accelerated depreciation. One of the most positive changes in the 2017 tax reform law was the introduction of full expensing of capital investments, which allowed businesses to bypass the complicated system of asset depreciation that requires them to recoup the value of capital investments over timelines as long as decades. Huffing and puffing that businesses use full expensing to zero out their tax liabilities is absurd, because it merely accelerates tax deductions businesses would receive anyway. In other words, the long-term “cost” of accelerated depreciation in terms of revenue reduction is zero. The difference is that businesses, which prefer cash on hand to cash down the line, are then able to reinvest the value of the deduction immediately rather than waiting years to receive the tax benefit.”