Photo-Illustration: Intelligencer; Photo: Getty Images
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Republicans’ Denial That They’re Defending Rich Tax Cheats Is Very Fake

Nonexistent study ‘proves’ Biden’s IRS funding won’t audit the wealthy.

Photo-Illustration: Intelligencer; Photo: Getty Images

Over the past generation, rich people’s taxes have been audited at a dramatically lower rate because the Internal Revenue Service has been slowly losing the resources to conduct the audits. Last year, in an attempt to increase tax compliance among the rich, Democrats passed a law to give the IRS more funding with the explicit direction of using the money to audit the wealthy.

Republicans propose to strip the IRS of its funding. But Republicans don’t admit their goal is to leave the agency unable to audit the rich. What they say instead is that the Democratic plans would actually target the non-rich. The basis of these claims is nonsensical.

A good summary of the state-of-the-art justification for the Republican plan can be found in a recent National Review column by Nate Hochman. Much of Hochman’s column is taken up with repeated familiar conservative myths — that the Democratic plan would hire “87,000 new IRS agents” (not true: Most of those new hires would not be agents and would be replacing existing staff) and that the Obama administration used the IRS to target the tea party (not true: The IRS was investigating the abuse of nonprofit status by political groups on the right and the left, and in any case, Obama had nothing to do with the policy).

The portion of Hochman’s column dedicated to arguing that Biden’s plan would mainly hit the non-rich is here:

The Left’s argument for the IRS expansion was that it would provide more resources to crack down on ultra-rich tax cheats. It’s more likely that the expansion will provide more resources for what the IRS does already: harass middle- and even lower-class Americans. A TRAC report last week found that “during FY 2022, the odds a millionaire was audited by an IRS revenue agent was just 1.1 percent.” On the other hand, “the taxpayer class with unbelievably high audit rates — five and a half times virtually everyone else — were low-income wage-earners taking the earned income tax credit.”

This is an exceedingly strange piece of evidence for Hochman to cite. The fact that the poor are audited at a higher rate than the rich is the problem Democrats are trying to address. Whether or not the Democrats’ plan will work, describing the status quo they are trying to change is hardly an indictment of it.

It is even more strange that Hochman would cite the high audit rate faced by people receiving the Earned Income Tax Credit as evidence against the Democrats’ plan. Even as they have starved the agency of resources, Republicans have spent 30 years pushing the IRS to increase auditing on EITC recipients. If Republican proposals had been enacted, rather than blocked by Democrats, audit rates on EITC recipients would be even higher.

The rest of Hochman’s evidence leans on a story from August by his National Review colleague John Fund. Here, I will quote Hochman quoting Fund:

Analyses of the new provisions don’t exactly inspire confidence that things will be any different. John Fund reports:


“The Tax Foundation projects that most of the additional audits will be executed on those making between $75,000 and $200,000 annually. The Senate rejected an amendment from Senator Mike Crapo (R., Idaho) that would explicitly limit audits and enhanced enforcement to taxpayers and companies making more than $400,000 annually. Every Democratic senator voted against the Crapo amendment, while all Republican senators supported it.


It seems reasonable to expect that the audits will tilt toward the self-employed and those who run small businesses. The rich will remain, as they are now, insulated by top-dollar lawyers and accountants.”

Here, I want to begin at the bottom and work my way up. Hochman argues that the audits will “tilt toward the self-employed and those who run small businesses” while “the rich” will be insulated by accountants and lawyers. This is doubly confused. Many rich people own their own businesses. To say they run “small businesses” is not to say they are poor or middle class.

And it is definitely true that rich people have lawyers and accountants. There is a mismatch between the resources available to wealthy tax cheats and those available to the officials dedicated to catching them. This is exactly why the IRS needs to hire its own accountants to audit them. Hochman is defending a plan to continue reducing the IRS’s resources, giving the rich an even bigger advantage.

The Crapo amendment formally restricting audits to people making more than $400,000 is even sillier. The problem the Democrats are trying to solve, once again, is rich tax cheats. The whole thing about tax cheats is that they lie about their income. You can’t catch the tax cheats unless you check and make sure they actually are making what they say. If you refuse to audit people who report less than $400,000 a year in income, you’re inviting even more cheating.

Then there is the Tax Foundation finding that “most of the additional audits will be executed on those making between $75,000 and $200,000 annually.” Hochman is quoting Fund. Fund’s column does not include a link to this study.

The Tax Foundation is a conservative group, but it does not make things up. I could not find anything like this claim on the Tax Foundation’s website.

I reached out to Fund to ask where he got this information. He told me he was traveling in Japan this week and didn’t have the information.

But the Tax Foundation itself tells me the number seems to have been invented. Jesse Solis, a spokesperson for the Tax Foundation, responded to my query:

We’re having a bit of trouble finding the inception of that claim too. That is not a projection the Tax Foundation has made. 

 

This is where I believe Fund pulled that from: https://www.realclearenergy.org/articles/2022/08/11/energy_climate_and_politics_the_2022_midsummer_note_847317.html

 

But again, this is not a figure we have estimated, so not sure why that author attributed it to us, either.

The column Solis points to here was written by Michael McKenna, a former Trump administration official. It appeared ten days before Fund’s column. Whatever source McKenna had for this number, if there is a source at all, it does not seem to be the Tax Foundation.

Here is what McKenna wrote:

The Tax Foundation projects that most of the additional audits will be executed on those making between $75,000 and $200,000 annually. An amendment from Senator Crapo explicitly limiting audits and enhanced enforcement to those taxpayers and companies making more than $400,000 annually was rejected. It seems reasonable to expect that the audits will tilt towards the self-employed and those who run small businesses.

Fund’s column regurgitates this claim, at times verbatim.

When I informed McKenna that the Tax Foundation denies having produced this conclusion, he wrote back, “Not at all sure how the Tax Foundation reference crept in there,” and suggested the number might have come from a press release from Republicans on the Ways and Means Committee. (That document is based on “applying 2010 audit rates” and assumes they will be used going forward, which is contrary to the Treasury Department’s objectives. Again, the method is to assume the rich won’t be audited, project what would happen if they aren’t, then treat that assumption as proof.) So McKenna, the former Trump staffer, apparently took a fact he saw from the Republicans, misattributed it to the Tax Foundation, lending it an aura of credibility, whereupon Fund repeated it and then Hochman cited Fund’s “reporting.”

The low quality of conservative commentary on this issue reflects the mismatch between the demand for “facts” that would support the narrative that Republicans are actually defending the middle class and the available supply.

Since the 1990s, Republicans have consistently pushed to increase tax-compliance requirements for low-income earners while decreasing funding for the IRS. Over that time, the poor have been audited at an increasing rate while the rich have been audited at a decreasing rate. They are now insisting with a straight face that the Democrats are the ones who want to protect rich tax cheats.

The irony of all this is that there is an incipient movement of conservative intellectuals and office-seekers who claim, in some cases earnestly, to push the party away from its plutocratic agenda and toward a more economically populist one. Hochman is one of them, And yet when confronted with a concrete case, their response is to help the party protect the rich and stick it to the poor while obfuscating on its behalf. If you want to know why the Republican agenda of upward redistribution of income is in no danger of being displaced, here is a perfect case study.

GOP Denial That It’s Defending Rich Tax Cheats Is Very Fake