Budget-Battered IRS Sinks Under Workload

I know what you are thinking...why should I give a rip if the IRS is overworked and understaffed? Isn't that a GOOD thing? Well, not entirely. Here is azcentral.com with the details:

At 12:30 p.m. Monday, about 50 people waited for help at the IRS center in Fort Myers, Fla. Another dozen who couldn't find seats stood in a line that stretched out the office suite door and into a lobby.

At the walk-in center in East Harlem, N.Y., Belquis Castillo, 40, left in exasperation Monday afternoon after waiting more than an hour. Castillo needed copies of her 2010 tax return so her son can enroll in online college courses, but was told the computers were down.

The long waits are the result of the IRS' expanded workload and diminished workforce, says IRS Taxpayer Advocate Nina Olson, whose 2011 annual report identified inadequate resources as the most serious problem facing taxpayers. In 1995, the IRS had a staff of 114,018 to process 205 million tax returns. In 2010, it had 90,907 people to process nearly 236 million tax returns. For this tax filing season, the IRS has 5,000 fewer employees than it did a year ago.

"This is the lowest staffing level I've ever seen, and I've been with the IRS 26 years," says David Carrone, president of the Louisiana chapter of the National Treasury Employees Union (NTEU). The New Orleans Taxpayer Assistance Center has six employees, down from 12 eight years ago, Carrone says. Sometimes, it doesn't even have that many: Louisiana has several one-person walk-in centers, and when that employee calls in sick, someone from the New Orleans office has to fill in.

Increasing the IRS' budget has never been politically expedient, and the Republican Party's anti-tax message has made the agency even more unpopular, says Bruce Bartlett, an economist who worked in the Reagan and George H.W. Bush administrations. "Beating up on the IRS is never going to hurt you politically, regardless of which party you're in, and we're paying the price for this kind of attitude."

And here is the real problem for taxpayers:

Nonetheless, there are times when taxpayers or tax preparers need to talk one-on-one with the IRS, and that's becoming increasingly difficult, says James Smith, a certified public accountant and former chairman of the Texas Society of Certified Public Accountants.

Smith says the hold times for his calls to the IRS range from 30 minutes to an hour and 45 minutes. "I've had to ask my secretary to stay on hold so I can go to the bathroom."

Staff shortages have also delayed IRS responses to letters from taxpayers seeking to resolve issues or set up payment plans, according to the NTEU. Some of these hold-ups can result in financial hardship for taxpayers, Smith says. One of his clients waited four months to get his refund after Smith filed an amended return. During that period, the client almost lost his home to foreclosure, Smith says.

But the issue goes far deeper than just inadequate funding for the IRS:

Still, increasing the IRS' budget won't address a more fundamental problem, says Mark Robyn, an economist for the Tax Foundation, a non-partisan organization that supports low taxes. Currently, he says, the tax code is so complex that average taxpayers can't prepare their returns without professional help.

Olson agrees that the tax code is too complex, but says that's no excuse for poor service. If individuals with questions about their taxes can't get help from the IRS, she says, "you're really harming taxpayer trust."

Mary Wright, an IRS employee and president of the NTEU chapter in Colorado, agrees. "Most people want to be compliant," she says. "But the tax code is complicated, and they need help."

And what is the REAL reason why the tax code is so complicated? Because Congress keeps creating loopholes and deductions that largely benefit rich people. People for whom hiring an army of accountants and lawyers to prepare their taxes, not to mention making huge campaign donations bribes to their favorite congresscritters is still cheaper than paying what ought to be their fair share in taxes.

The political economy of flat taxes

The GOP has revived this season the ghost of the flat tax. Cain is for the 999 plan (whatever that is) and Perry for a 20% flat income tax (see here, for example). I haven't seen any particular analysis of the Perry plan so far, but it won't be much different from the Cain breakup. For example, the Tax Policy Center (here) shows that Cain's plan would increase the federal taxes of the lowest quintile by 18.3% while reducing that of the top 0.1% by 17.9%.  And that's not class warfare! You don't need to be a rocket scientist to know that when you hear flat tax it's all about reducing the taxes of the rich.

Taxation was, by the way, always a key concern of classical political economy (it's there in the title of Mr. Ricardo's Principles). One of the most famous tax proposals of the 19th century, Henry George's single land tax, was in fact based on the 'Ricardian' theory of the rent. That is, the idea that landowners derive their income (rent) from ownership, and that their income (for a given level of output) detracts from profits and the possibilities of accumulation, required a tax to transfer income against wealthy landowners.

The interesting thing is that since the old classical surplus approach makes it clear that class conflict is essential for understanding the functioning of the economy, it does not try to disguise the issue of taxation as not having distributive consequences.

Alan Krueger to lead the CEA

The NYTimes reports that Alan Krueger will be the next chairman of the Council of Economic Advisors. A well respected, serious professor from Princeton, that almost everybody from Mankiw to Krugman will approve of. He is a labor economist, and yes that is a problem. My concern with labor economists, is that they tend to think in microeconomic terms when it comes to employment creation, and that is definitely not a solution for the current situation.



For example, the Times tells us that:

"Dr. Krueger was also one of the administration’s chief spokesmen for a payroll tax cut designed to encourage employers to hire, a policy that was in effect under the HIRE Act during 2010. The tax incentive, which was designed by Senators Chuck Schumer and Orrin Hatch after a raft of competing proposals floated through Washington, was criticized by some economists as being too small and ill-targeted to make much of a difference in hiring."

Don't get me wrong a reduction of payroll taxes, a regressive tax that burdens low income groups more heavily, is a good idea. But the reason is that it would stimulate consumption, not that it would reduce costs and lead to additional hiring. Why would a firm hire workers, because costs are lower, if they don't have demand for their products? Employment creation is NOT about incentives to the supply side, but about creating more demand!

Milton Friedman was wrong on Bush's tax cuts

Zain Siddiqui sent a link to a radio debate between Paul Samuelson and Daniel McFadden (against) versus Milton Friedman (for) on Bush's tax cuts back in 2003. In the minute 24:20 of the interview, the host asks Friedman:

"Milton Friedman, let me turn to you, are you suggesting, on the contrary, that these tax cuts will lead to capital formation, investment, and therefore, economic growth?"

His response, after noting that he is a libertarian, was:

"Yes I am, indeed and well."

This was eight years ago. Time to take stock and see what happened.  Average rate of real GDP growth from 2001 to 2010 was 1.68 percent.  Below the historical average, even if you eliminated the crisis, in which case it would be 2.08 percent.  And let's not forget that the tax cuts are to a great extent, besides the crisis and the two wars, the cause of higher deficits and debt. Was he wrong? Yes, indeed and well.

Top marginal rates and income distribution

A little aside prompted by the top marginal rate graph I posted
yesterday. If you graph it together with the share of income of the top 10% of the population (data available in Emmanuel Saez’s webpage), you see that as the top marginal rate goes up in the 1930s the income share of the wealthiest individuals falls, and vice versa in the 1980s. Not rocket science. And clearly there are several other factors that explain the down and up change in the income share of the wealthiest, from the strength of unions after the Wagner Act and their current struggles (e.g. in Wisconsin), to the education boost of the GI Bill and the current increases in the cost of public education, to the political changes in the Republican Party after the rise of the conservative movement.




PS: I excluded the earlier years of the 20th century, because of the sharp increases in top rates during World War I.

How much did YOU pay for war this year? (Video)

Youtube - BraveNewFoundation

Ever wonder how much you paid to fund the war? Use the Afghanistan War Tax Calculator to find out. We'll give you an I.O.U. for what you paid that you can forward to your Member of Congress. Ask for your money back! http://rethinkafghanistan.com/



RELATED ARTICLE:
The Military Tax Collector is Here Again

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US broadens LatAm drug strategy

Editor's Note: More tax dollars going to another foolish war that is impossible to win.

Gil Kerlikowske, director of National Drug Control Policy
© AFP Jewel Samad

AFP

WASHINGTON (AFP) - The United States is launching a broad new strategy that would funnel several hundred million dollars for drug interdiction in Latin America, a senior US official told lawmakers Thursday.

The strategy aims to put in place "interlocking plans" in the region, notably in Mexico, Colombia and Central America, and expanding efforts in areas like the Caribbean to neutralize transnational criminal groups.

"We expect this Western Hemisphere Counterdrug Strategy to be completed this summer," national drug control policy director Gil Kerlikowske told a Senate hearing.

"The global nature of the drug threat requires a strategic response that is also global in scope. It is not realistic for countries to expect to be effective if they are operating in a vacuum," he added.
The strategy will merge a handful of existing programs, including Plan Colombia, which has received more than $6 billion in US aid since it was launched in 2000, and the Merida Initiative for Mexico, for which Congress has appropriated $1.5 billion since 2008.


The United States is the final destination for massive amounts of drugs -- cocaine, heroin, marijuana and methamphetamines -- produced in or trafficked through South and Central America.

With battles for control over lucrative smuggling routes and crackdowns by governments, the drug trade has led to several thousand people being killed in recent years, notably in Mexico.

Much of the new US strategy will focus on interdiction and disruption of transnational criminal elements, as well as strengthening institutions, reducing demand for drugs and developing community policing and other local counter-drug efforts.

William Brownfield, assistant secretary of state for counter-narcotics and law enforcement, said the United States was facing "complex and evolving threats" from crime syndicates, violent youth gangs and foreign terrorist groups in the region, and that "illegal narcotics remain the financial lifeblood of these organizations."

Brownfield told the Senate panel that Central America was now facing "the most emergent threat in the hemisphere," as syndicates move deeper into the region to take advantage of weak institutions and "a climate of impunity for criminal activity."

He said Washington plans to spend some $200 million on the Central American Regional Security Initiative, or CARSI, which was launched in 2008.

But "progress in Central America will only push drug traffickers elsewhere if we do not support strong institutions throughout the hemisphere," Brownfield said.

Washington is therefore focusing on a Caribbean Basin Security Initiative, aimed at beating back organized crime and trafficking, improving police forces and strengthening institutions and civil groups, Kerlikowske said.

US president Richard Nixon declared a war on drugs in 1971, and the program was expanded dramatically into Latin America in the 1980s.

Kerlikowske insists interdiction efforts have worked, citing cocaine production in Colombia which plunged by 60 percent from a high point in 2001 to 2009.

Cocaine production in the Andean region as a whole has dropped by 34 percent since 2001, he said, resulting in dramatically higher street prices and lower purity levels for the drug.

© AFP -- Published at Activist Post with license

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GE 'zero' US tax furor reignites calls for reform

Revelations that General Electric paid no US taxes last year, despite bagging a $14 billion profit, have reignited debate in Washington about tightening up corporate levies.

© AFP/Getty Images Scott Olson

AFP

WASHINGTON (AFP) - Revelations that General Electric paid no US taxes last year, despite bagging a $14 billion profit, have reignited debate in Washington about tightening up corporate levies.

No one, it seems, is very fond of the US corporate tax system.

Businesses bemoan the 35 percent minimum rate that is among the highest in the world, and taxpayers are furious at how easily big firms seem to pay much less.

But in recent months the issue has been overshadowed by multiple global crises and a fierce argument over government spending.


It resurfaced with a bang last week, when it emerged that manufacturing titan GE paid no taxes to the US government in 2010.

"GE did not pay US federal taxes last year because we did not owe any," spokeswoman Anne Eisele told AFP, rejecting suggestions the United States' fourth largest company was gaming the system.

But as millions of Americans struggle to make ends meet, and the Federal government fails spectacularly to do the same, that disclosure has caused consternation.

"The wealthiest Americans and most profitable corporations must do their share to help bring down our record-breaking deficit," Democrat-allied Senator Bernie Sanders said Sunday.

Supporters of reform, from big business to the White House, are re-polishing their arguments.

The White House argues an overhaul could help bring down unemployment. Big business agrees a lower rate would aid growth.

Despite this broad coalition, experts say the prospect of a quick deal is illusory.

They argue the government has few options if it wants to substantially lower the minimum rate and not add to the deficit: Expand the number of people paying corporate taxes, or get more revenue.

"If you want to get the corporate tax rate down from 35 to 28 percent -- that is a 20 percent cut in the tax rate -- you have to have increase the tax base by 20 percent, or offset it," said Alan Auerbach, an economics professor at the University of California, Berkeley.

"That is a big increase."

President Barack Obama has leaned heavily toward closing loopholes, arguing that "revenue neutral" reform must spell an end to some antiquated, but much-loved, tax breaks.

"I don't think there is anyway to do this without winners and losers," said Seth Hanlon, the director of fiscal reform at the left-leaning Center for American Progress.

Cutting roughly four billion dollars a year in oil and gas sector subsidies are a regularly cited example of cuts, so too is tightening manufacturing deductions that are used well beyond the sector.

But the most lucrative target for the Internal Revenue Service may be cracking down on overseas tax shelters.

Under current rules US firms pay tax on foreign subsidiaries only when profits are sent back to the United States.

© AFP/File Nicholas Kamm

Treating subsidiaries as domestic businesses for tax purposes could spell vastly higher tax bills for firms like GE.

While the company says much of this year's tax savings come from losses at GE Capital, even before other write-offs its effective US tax rate was just over seven percent -- thanks in part to some profits being kept overseas.

"If you just look at our statutory rate, it's high," said Annette Nellen, an accounting professor at San Jose State University, but "the effective tax rate for many companies is a lot lower."

Outrage or not, tough bargains will need to be reached if a reform deal is to be reached.

"It is going to depend on who all steps forward to say 'oh no, no, we can't get rid of the research credit, we can't get rid of that work opportunity tax credit,'" said Nellen.

"If you get enough people stepping forward to say you can't get rid of this stuff, then Congress I think will just step back and say, we'll leave the rate where it is."

© AFP -- Published at Activist Post with license

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