High Desert Sketches: Feeling pity for the poor old Internal Revenue Service

Art by Valerie “CrowCrumbs” Howard

There was a time where the Internal Revenue Service was America’s most feared federal agency. Their job was to make sure the big international corporations and the super rich paid their fair share. I’ll let you in on a little secret: it doesn’t work that way anymore.

My devoted readers might consider going down to H&R Block for a little help, but few of them would consider hiring a tax attorney. The majority of tax attorneys charge by the hour. Every attorney will charge a different hourly rate, but most rates are between $200 to $400 per hour. Highly experienced attorneys or attorneys working in big firms in large cities can charge more than $1,000 per hour.

Who can afford help at $1,000 an hour? Simple, the top 2% who own most of the country and the international corporations that the IRS is supposed to keep in line. An in-depth analysis of Fortune 500 companies’ financial filings finds that at least 60 of the nation’s biggest corporations didn’t pay a dime in federal income taxes in 2018 on a collective $79 billion in profits, the Institute on Taxation and Economic Policy (ITEP) reported. The ITEP is a nonprofit, nonpartisan think tank that works on state and federal tax policy issues. ITEP was founded in 1980, and is a 501(c)(3) tax-exempt organization. If these companies paid the statutory 21% federal tax rate, they would owe $16.4 billion in federal income taxes. Instead, they collectively received $4.3 billion in rebates. A spokesman from ITEP said, “For years, corporations have manipulated the system to avoid paying taxes, and it’s clear that the 2017 tax law did nothing to change this.”

The tax-avoiding corporations are some of the most profitable and well known companies in the world, and they represent a variety of industries, including technology, energy, financial services, aviation, pharmaceutical and manufacturing. These companies avoided taxes by employing a variety of legal tax breaks. Accelerated depreciation allows companies to write off the cost of their investments much faster than these investments wear out. This break accounted for hundreds of millions in tax write-offs. Chevron alone, for example, reported $290 million in accelerated depreciation, and Halliburton reported $320 million.

Stock options provide a dubious tax break that allows corporations to write off expenses far in excess of the cost they report to investors. Amazon, Netflix and a number of other companies used this tax break to write off millions. Tax credits and subsidies also provided hundreds of millions in write-offs for corporations. The 2017 tax law dropped the statutory federal tax rate from 35% to 21%. Lawmakers in favor of the law claimed that lowering the federal tax rate would make U.S. corporations more competitive globally, and they also claimed the tax cuts would spur innovation and pay for themselves. Sorry Joe, it just ain’t so.

Nick Hanauer, a Seattle billionaire, author, and progressive activist thinks significantly raising taxes on the rich will help correct structural deficiencies in the economy. A more conservative billionaire investor, the legendary Warren Buffett, once stated, “It’s not fair that my secretaries taxes are at a higher percentage than mine.”

As the 2020 presidential race gains momentum, Democrats running against President Tweet are pushing alternatives to his tax cuts, focusing on the top 2% of America’s incomes and the international free-loading corporations. More and more Americans are beginning to realize that prosperity tends to go up to the top 2% and disregards the rest of us. Not known as a liberal thinker, Jerome Powell, chairman of the Federal Reserve has said, “We want prosperity to be widely shared. We need policies to make that happen. The U.S. lags now in mobility. And that’s not our self-image as a country, nor is it where we want to be. We have some work to do to make sure that the prosperity we do achieve is widely spread.” He does not have to point out that the difference between the rich and the poor today is as great as it was in the Gilded Age of the 1890s, the era of the robber barons.

The IRS has become impotent because of a number of factors. The code that runs on the IRS computers was written during the 1960s. Most of the agency’s computers that run the code are older than the computer technicians that operate them. New research from the Indiana University Kelley School of Business indicates that the IRS budget cuts have gutted its effectiveness and resulted in an estimated $34.3 billion in lost tax revenue from large international corporations. Ancient equipment and old code guarantee that the puny IRS will become even less effective at taxing the top of our economy.