Servicing the Rich
Servicing the Rich
In today’s New York Times story about how America loses more than a quarter trillion dollars in tax revenue each year to cheating, the paper claimed, “The I.R.S. said that 80 percent of taxes owed but not paid by individuals were a result of underreporting of income, often by people working in the service sector.”
It was hard for me to believe that 80 percent of about $200 billion was being stolen mostly “by people working in the service sector” (waiters underreporting tips, fast food workers underreporting income, etc.), as the Times suggests. If that were the case, I would think service sector workers in America would be far more well-off than they are today.
So I went to the primary source, the IRS’s new report, and found that yes, it is true that “noncompliance from underreporting account for more than 80%” of the missing tax revenue. However, page 10 of the report breaks down that statistic a bit more. It shows specifically that the underreporting of “business income” accounts for about $100 billion of the tax gap, and underreporting of “wages, salaries, tips, etc.” account for just $18 billion. “Business income,” remember, is defined as money made by sole proprietorships, S corporations, etc. The category includes wealthy lobbyists, sports agents and high-paid political consultants — not exactly what you think of when you hear the phrase “working in the service sector.” In fact, I can find absolutely no data in the IRS report which justifies the New York Times suggesting that the problem “often” emanates from those “working in the service sector.”
What’s my point? Simple: the media often reinforces dishonest stereotypes designed by conservatives to help the right-wing pursue its ideological agenda. The New York Times’s error plays into the right-wing’s “persecuted rich” myth, reinforcing the idea that the rich are overtaxed, and it is working class people who are ripping off the system.
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A good copy editor would have stricken that word “often” and demanded examples of what the “service sector” means. God DAMN, but I should be copyediting news.
March 30th, 2005 at 11:10 amI can’t comment on the article, but the federal tax system is broken. It’s supposed to be progressive but the complicated mess of rules favors the rich (because they can pay someone to figure it out for them) and penalizes the poor. We need a tax system that is as simple as possible, and where the cost/effort of compliance is as small as possible.
March 30th, 2005 at 11:40 amNice catch, Tony. Keep ‘em coming!
March 30th, 2005 at 12:21 pm———-
Good work David. Impressive.
Thanks for the extra effort.
Jackie Corr, Butte, Montana
——————–
March 30th, 2005 at 12:26 pm“Business income,â€? remember, is defined as money made by sole proprietorships, S corporations, etc”
Let’s not forget that these are the “job creators” according to the Shrub and his flacks.
Let’s also not forget that these are the people who – according to W himself- hire accountants to evade their taxes and stick middle-class folks with the bill.
So……why are they getting more tax cuts when they aren’t even paying the taxes they now owe?
The rich being “punished” by taxes is utter bullshit……pure, unadulterated Bush bullshit.
March 30th, 2005 at 1:11 pmThey are also trying to say “Gee, if everyone would just pay their taxes, we wouldn’t have this giant budget deficit. It’s not our fault!”
Of course, the cuts in enforcement budgets and the focus on making poor people pay up is really the problem.
March 30th, 2005 at 1:31 pmGood work, you guys are great. It could be the Pareto principal at work here…i.e., 80% of those who underreport are in the service sector, but they only account for 9% of the dough, conversely there are fewer rich cheaters, but that’s where all the money is. OR it could just be sloppy biased reporting and editing…I report, you decide..
March 30th, 2005 at 1:35 pmI’m certainly in agreement with David, and I want so much to be in agreement w/ Tony.
No question, in my mind at least, that the federal tax system does need reform.
Likewise, I admire Tony’s seemingly common sense suggestions that the federal tax system should be as “simple as possible” with the “cost/effort of compliance . . . as small as possible.”
But how do we translate that into policy and practice? In other words, is this the usual code speech for a flat tax? Or a consumption tax?
One could argue for either or both: but arguments and evidence are needed.
Let’s look at two obvious and related areas of reform for which we have considerable data:
1. Tax evasion, particularly the use of offshore tax havens.
2. Lack of effective enforcement by the IRS.
The General Accounting Office, in their review of IRS procedures, declared: “The area where progress is least apparent-compliance-is perhaps IRS’s most significant risk and greatest challenge looking forward.” Get the full report in PDF here.
In part, because the tax evasion schemes–and particularly the use of offshore havens–have become more sophisticated. In part also because the IRS–for various reasons–has cut back drastically on audits and criminal investigation.
Here are some numbers. In 2002, then IRS Commissioner Charles O. Rossotti testified that “60 percent of identified tax debts are not pursued,
75 percent of taxpayers who did not file a tax return are not pursued,
79 percent of identified taxpayers who use abusive devices such as offshore accounts are not pursued” [ref].
Got it? So If I’m using an offshore account, even after I’ve been identified by the IRS as a possible tax cheat, my chances are 8 out of 10 that I won’t be pursued.
Rossotti’s successor, IRS Commissioner Mark W. Emerson, correlated this lack of enforcement with “a real deterioration in taxpayer attitudes.”
No surprise, right?
What’s the running total thus far? Well, Jonathan Weisman of Washington Post notes that “IRS documents cited by the GAO indicated that these tax-evasion techniques and others are depriving the Treasury of up to $40 billion in unrealized taxes per year, more than the annual budget for the Department of Homeland Security.”
$40 billion.
And it’s not improving.
I’d recommend to anyone interested in these topics David Cay Johnson’s work, including
his book Perfectly Legal: The Covert Campaign to Rig Our Tax System
to Benefit the Super Rich – and Cheat Everybody Else.
If that title seems far too dramatic, which it does also to me, you should review Johnson’s research: it shockingly holds up.
So people like myself are deeply skeptical about certain proposed tax reforms.
The theory seems oh so wonderful. But in practice, a small minority benefits at the expense of everyone else.
While we debate the perfect tax system, try this in the meantime for some real reform.
1. Enforce existing laws.
2. Close the offshore loopholes.
3. Stop rewarding criminal behavior.
4. Stop subsidizing profitable corporations.
That would work.
March 30th, 2005 at 1:52 pmGee, i wonder if that great service sector corporation H&R Block underreports income?? Or that other really important service sector corporation AMA, or Safeway, or HHK and that which was known as Arthur Anderson? Say what about SBC and Qwest and MCI or Verison, they are all service sector corporations??
March 30th, 2005 at 1:53 pmReminds me of Reagan’s “Welfare queen driving to pick-up her check in a Cadillac” statement from the 80’s. That image still lives today – and I’m sure clouds people’s impression of social programs (even beneficial social programs)
March 30th, 2005 at 3:56 pmI take your point that it is this should not be laid at the feet of those trying to get by on tips and meager wages. And I am just as wary of people who beleive that those at the lower end of the economic ladder are somehow morally deficient and therefore assume they are more likely to cheat.
However, it’s a little bit over the top to assume that any use of the phrase “service sector” primarily implies waiters, shoe shiners and bowling alley repairmen.
The economy is composed of manufacturing, agricultural and service sectors. That’s it. OK maybe governement gets it’s own category, maybe not. In any case, lawyers, doctors, wall street sharks (the ones who aren’t lawyers), Hollywood moguls as well as cabbies, minor league baseball players and Walmart greeters are all lumped in their as service sector workers.
Accounting procedures in manufacturing are very well established and it’s often way to difficult to hide physical assets. Services are full of accounting ambiguities and intangible assets. Thus the difficulty and the opportunites to cheat.
Feel free to educate the public about all these subtlties but it doesn’t warrant beating up the NYT when you incorrectly infer what they are not implying.
March 31st, 2005 at 3:32 amThe problem is so basic. The Republicans won the battle of today some 15-20 years ago when they slowly and systematically dismantled the public education system in this country.
If you can’t think critically, you can be spoon-fed whatever propaganda the corporate media and right-wing controlled government wants to give you.
And you WILL love Big Brother.
Republicans lie and innocent people die.
Republicans steal and give to their rich friends.
Republicans cheat and think they are being moral.
We’ve got to sweep away all the republicans in ‘06 and ‘08.
Charlie L
March 31st, 2005 at 5:53 pmPortland, Oregon
CLL2001@Gmail.com
Hey Jon did’t know you are reading this too :0. Greets
April 2nd, 2005 at 9:22 amCharlie, and others got it right here!
If I may add, the Repubs love to say that Americans in the service sector under-report their income…. I’ve worked in that sectors.. I bussed millions of tables and demanding customers…. I, like most others, was paid, like $1-2/hr plus my tips…. Let me tell you… it was a struggle! And, NO, I didn’t report my tips to the IRS… (maybe it wouldn’t have made much of a difference tax-wise.. but couldn’t affort to pay anything in added taxes)…
OK, I’m not advocating tax-cheating, but can we honestly blaim anyone who saves a few hundred dollars in taxes owed, when we see that HUGE corporations pay NOTHING?
Wachovia made 14 billion in profits in 2002…. paid ZERO in income taxes!
April 2nd, 2005 at 12:42 pmAccenture, got $10 billion in Homeland Dpt contracts (among others)… has a fax in the Bahamas that calls it “headquarters”!!!!!! No one works there…. Can it be for tax-evading reasons???
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November 25th, 2005 at 2:20 pmThe majority of these comments indicate how most people simply think that those who make more money are the rich ones who must be taxed unreasonably. 15 years ago a lot of them probably thought that paying $50k in taxes for a man making $100k was fair. But now that they are making that much a 50% total tax rate is robbery that should be only happen to the those making $200k. The only way it’ll ever be fair is to tax people by what the spend, not what they make.
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