A More Powerful IRS Won’t Target Only the Wealthy

“I interviewed a prominent tax attorney who had spent years at the IRS and she confirmed what others have reported. When the IRS determines that someone owes money, it sends out threatening letters, but then the targeted person has no actual recourse or due process. The IRS hotline only is capable of handling a tiny percentage of calls.
One typically must spend hours on hold to speak to someone at the IRS, only to receive incomplete and conflicting answers. The agency doesn’t have a modern online system that allows taxpayers to handle most of these matters efficiently. In the past, if the IRS issued a levy it would include the name of a revenue officer that a taxpayer could contact. Now the IRS uses bots—and it typically takes months to get an answer via mail.

Here’s a typical scenario. The IRS determines that you owe a large sum of money. You and your accountant can’t get through to an agent. The agency places a lien on your property, freezes your bank account, or garnishes your wages. The only way to resolve the issue is to hire an attorney and spend thousands of dollars to get your day in court.”

“Only a tiny portion of the new spending goes for improvements in the agency’s customer-service system or for technology upgrades.”

Don’t Believe the White House’s Promises About Who the New IRS Will Audit

“”Contrary to the misinformation from opponents of this legislation,” Treasury Secretary Janet Yellen wrote in a letter to IRS Commissioner Charles Rettig Wednesday, “small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited.” Rettig had echoed the language of his boss in a letter of attempted reassurance to the Senate on August 4, albeit with more wiggle room (italicized):
“These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans. As we’ve been planning, our investment of these enforcement resources is designed around the Department of the Treasury’s directive that audit rates will not rise relative to recent years for households making under $400,000.””

“none of these assurances live in the text of the Inflation Reduction Act (IRA) itself. One Republican amendment “to prevent the use of additional Internal Revenue Service Funds from being used for audits of taxpayers with taxable incomes below $400,000″ was voted down on party lines. You’ll just have to take Democrats’ word for it.”

“In a September 2021 letter, CBO Director Phillip L. Swagel estimated that boosting IRS funding by $80 billion would increase tax revenues by $200 billion (the number would later rise to $207 billion, before settling at $204 billion), adding that “the proposal…would return audit rates to the levels of about 10 years ago; the rate would rise for all taxpayers” (italics mine), though “higher-income taxpayers would face the largest increase.”

This remains the CBO prediction, which otherwise Democrats are happy to tout for the $204 billion revenue increase and $124 billion net reduction to the deficit ($204 billion minus the $80 billion cost).”

“The “tax gap” that the IRS seeks to close includes large amounts from the under-$400,000 club.”

Congress Just Passed the Inflation Reduction Act. It Will Hike Taxes on Some Middle-class Households.

“Despite the bill’s name, independent analysts have found it will have virtually no impact on inflation. In reality, it is a pared-down version of what Biden originally pitched as the “Build Back Better” plan—it leaves aside much of the original bill’s spending, but it maintains a huge corporate tax increase, huge spending on green energy initiatives, and a plan to swell the ranks of IRS agents. What was originally a roughly $4 trillion proposal that would have relied heavily on borrowing ended up being something of a rarity in Washington: a bill that will raise more revenue than it spends.

And where will it get that revenue? Quite possibly from you. Households earning as little as $50,000 annually are more likely to see a tax increase than a tax break from the legislation.

In the final hours before the House vote, the Joint Committee on Taxation (JCT) completed a breakdown of how the bill’s corporate tax increases would affect households at various income levels. The JTC, a nonpartisan number-crunching agency within Congress, found that households earning between $50,000 and $75,000 are more likely to see a tax increase than a tax decrease next year.

Higher-earning households are more likely to see tax increases, but households earning more than $1 million next year are actually far more likely than lower-earning households to get a tax break.

That fits with what The Tax Foundation, a tax policy think tank, found when it analyzed the bill. The Inflation Reduction Act will “would also reduce average after-tax incomes for taxpayers across every income quintile over the long run,” the Tax Foundation reported on Wednesday. Those tax increases will reduce long-term economic output by about 0.2 percent and could eliminate 29,000 jobs, the group found.”

” Tax increases on corporations get passed along from the board room table to the kitchen table in a variety of ways: lower pay for workers, higher prices for consumers, and smaller investment returns for shareholders.”

The Sinema-Manchin split that shaped Dems’ deal

“After Manchin agreed with Senate Majority Leader Chuck Schumer on the party-line tax, health care and energy bill, the West Virginia Democrat found himself bargaining with fellow moderate Sen. Kyrsten Sinema. Both hard-nosed negotiators, the Arizona Democrat’s business-friendly tax-approach clashed sharply with Manchin’s more progressive positions on taxes.

Manchin sought to target the wealthy and ended up agreeing with Schumer to target the so-called carried interest loophole that allows some people to pay lower tax rates on investment income. He also signed off on a corporate minimum tax package that most Democrats believed Sinema supported.

Ultimately, Sinema took a scalpel to the corporate minimum tax and scuttled any changes to carried interest, which Manchin called particularly “painful.” Triangulating between them through all of it: Schumer, whose job was harmonizing the views of the very public Manchin with an often-silent Sinema.”

Taxpayers Pay the Price for DeSantis’ War on Disney

“In March, DeSantis signed into law H.B. 1577, which described itself as “an act relating to parental rights in education.” The bill limits discussions of sexual orientation and gender identity in public school instruction and authorizes parents to sue school districts that break the vaguely written rules.

Walt Disney Company CEO Bob Chapek initially tried to keep the company publicly neutral on the bill. But after it passed, Chapek and Disney, responding to pressure from the company’s employees, both spoke out against H.B. 1577.

Irked by the criticism, DeSantis and Florida’s Republican-controlled legislature took aim at the Reedy Creek Improvement District (RCID), which state lawmakers established in 1967 to give Disney substantial autonomy within the nearly 40 square miles it owns in Orange and Osceola counties. The special district allows Disney to control zoning, construction, infrastructure, emergency services, and taxation to pay for all of it.

While Florida has more than 1,800 special districts, Republicans targeted Disney by restricting the bill to districts established prior to 1968. DeSantis made it clear when he signed the bill that it was punishment for criticism of H.B. 1577. “You’re a corporation in Burbank, California, and you’re going to marshal your economic might to attack the parents of my state,” he said. “We view that as a provocation, and we’re going to fight back.” The bill would dissolve the RCID and five other pre-1968 districts in 2023.

While DeSantis and other Florida Republicans seem to view the RCID as an undeserved privilege, it freed Orange and Osceola counties, along with their taxpayers, from responsibility for Disney’s massive park. For instance, Disney pays the Orange County Sheriff’s Office millions of dollars each year for policing services. Orange County Mayor Jerry L. Demings said it would be “catastrophic” for the county’s budget if it had to pay for first-responder services in the park. DeSantis suggested in May that the state could take over the district.

The RCID also has $1 billion in bond debt. In an April statement to bondholders, Reedy Creek representatives said the district cannot be dissolved under Florida law unless those debts are paid off.

What happens next is not entirely clear, although an early attempt by a group of nearby taxpayers to sue DeSantis was dismissed due to lack of standing. Some First Amendment scholars suggested that Disney could challenge the law as a form of unconstitutional viewpoint discrimination.”

Modest Tax Relief Comes to California’s Cannabis Growers

“One of California’s many oppressive taxes on the cannabis industry has been laid to rest. Gov. Gavin Newsom has signed into law A.B. 195, which eliminates the state’s cultivation tax.

California’s cultivation tax, unique among the states that have legalized marijuana sales, forced growers to pay the state for each ounce of cannabis grown. This tax was separate from the state’s 15 percent excise tax and state and local sales taxes.

Because the cultivation tax rate was automatically indexed to inflation, it had actually been increasing thanks to the state of the economy. Anybody attempting to legally grow marijuana shouldered a heavy tax burden, which then flowed downstream to consumers, many of whom realized it was cheaper to continue purchasing marijuana on the black market. The end result: two-thirds of marijuana purchases in the Golden State take place through unlicensed vendors. Because it’s so expensive to grow legally, illegal grow operations abound within the state, leading to more police raids, arrests, and prosecutions, not to mention corrupt practices among local governments who have the power to pick and choose which businesses can open up shop legally.”

“A.B. 195 also bends the knee to the state’s labor unions by reducing the threshold from 20 to 10 employees to require that aspiring licensees enter into a labor peace agreement with a qualifying labor organization. A labor peace agreement is a deal between a business and a labor union that the business will not oppose a unionization effort and the union will not encourage strikes or work stoppages. Making it a mandatory requirement in order to get a license essentially gives labor unions a type of veto power over who can and can’t operate a marijuana business. These agreements also, by their nature, require both sides to waive certain rights under the federal National Labor Relations Act.”

Schumer, Manchin Strike Deal To Raise Taxes, Cut the Deficit, Spend Billions on Climate Change

“Senate Majority Leader Chuck Schumer (D–N.Y.) has reportedly brokered a deal with Sen. Joe Manchin (D–W.Va.) to pass a slimmed-down version of President Joe Biden’s spending plan—now to be marketed as an attempt to curb inflation.”

“The bill will include $370 billion in new spending on climate change initiatives and green energy projects—a linchpin of Biden’s Build Back Better plan through its many, many interactions over the past year—and would dedicate about $300 billion of revenue toward reducing the deficit, which has been Manchin’s top priority.
The bill also reportedly includes a three-year extension of the expanded Affordable Care Act (ACA) subsidies originally passed as a temporary measure during the early days of the COVID-19 pandemic, as well as changes to how federal health insurance programs price prescription drugs. Though pitched as a way to cut costs for households, the extension of those ACA subsidies could actually worsen inflation, as Reason’s Peter Suderman has explained.

The spending and deficit-reduction items will be funded with a series of proposed tax increases. Politico reports that the bill would impose a 15 percent corporate minimum tax, expand the IRS’ enforcement division (a questionable means for generating revenue, it should be noted), and close a commonly used business tax break for carried interest. The tax changes would generate about $739 billion over the next decade, according to The Washington Post.”

“For today, at least, Joe Manchin seems to have gotten his way.”

One Year Later, No One Has Been Punished for the IRS Leak of Billionaires’ Tax Data

“So, the use of tax data by ProPublica and its source to make a policy point isn’t exactly groundbreaking. Some of the agents and politicians who weaponized the IRS in the past intended to make the world a better place by their lights, or at least to hurt only people and organizations they were convinced were bad. And leaks from government agencies often do achieve beneficial ends. Where would we be without Daniel Ellsberg’s copies of the Pentagon Papers, Mark Felt’s role as “Deep Throat” in the Watergate scandal, or Edward Snowden’s revelations of government surveillance?

But leaks from the IRS aren’t war plans, misuses of power, or politicians’ schemes; they’re sensitive, private financial information that we’re forced to surrender to government agents. We have no choice but to fill out our tax forms even though we know that the federal employees receiving our information have a track record of abusing that data for their own ends and to our detriment.”

Gov. Newsom Proposes Eliminating One of California’s Many Marijuana Taxes

“When Californians voted to legalize recreational marijuana cultivation and sales back in 2016, the industry ended up saddled with state and local taxes that make it inordinately costly to attempt to sell or buy cannabis legally. As a result, the black market for marijuana still dominates sales in a state where it’s legal to buy it. Industry analysts estimate about $8 billion in black market marijuana sales annually in California—double the amount of marijuana purchased through licensed dispensaries.

The cultivation tax has been consistently eyed by industry analysts as a problem. This particular tax is unique among agricultural products in California, and due to the legislation passed in 2017 to establish tax authorities, it’s regularly adjusted for inflation. As a result, cultivation tax rates actually increased at the start of 2022 despite this big black market problem.

The high cost of attempting to cultivate marijuana has both given cannabis farmers second thoughts and has fostered a whole new drug war as state and local law enforcement officers raid illegal grow operations out in the rural and uninhabited parts of the state. Legislators even passed a new law adding more potential criminal penalties for those arrested for “aiding and abetting” any unlicensed dealers.”

“It’s good news that Newsom is proposing eliminating the cultivation tax. He may be doing it in the hopes that the state will make more money, but California residents will also benefit from cheaper legal options. And if this makes it easier for people to grow cannabis legally, there will hopefully be fewer raids and enforcement operations in the future.”

No, Elon Musk Didn’t Pay a 3.27 Percent Tax Rate

“Musk’s income puts him in the top federal income-tax bracket, where income is currently taxed at 37 percent.

According to ProPublica, Musk’s average effective federal income tax rate between 2013 and 2018 was 27 percent.

And the tax on exercising his Tesla stock options was much higher. “Since the options are taxed as an employee benefit or compensation, they will be taxed at top ordinary-income levels, or 37% plus the 3.8% net investment tax,” notes CNBC. “He will also have to pay the 13.3% top tax rate in California since the options were granted and mostly earned while he was a California tax resident. Combined, the state and federal tax rate will be 54.1%.”

Jayapal seems to have reached her “alternative facts” (to use a vintage Trump-administration term) by calculating Musk’s tax rate based on a system she wishes we used rather than the calculation system we actually use.

As it stands, Americans do not pay taxes on unrealized gains—that is, appreciations in investments that exist only on paper. If you own a stock worth $5 per share and its worth increases to $6 per share over the course of a tax year, you have an unrealized gain of $1 per share. You aren’t expected to pay taxes on that gain until you sell your shares—which makes sense, since 1) you don’t actually have that money yet and 2) the stock’s worth could drop again before you sell. Maybe next year the stock decreases to $4 per share.

Jayapal appears to have come up with the alleged 3.27 percent tax rate for Musk by including unrealized gains in the amount she thinks he owes taxes on (while using the standard method for calculating the average income tax rate). However, unrealized gains are, by definition, gains that Musk doesn’t yet have. When he actually realizes the gains, he will be required to pay taxes on them. That’s how it works.”