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Maine taxpayers won the lottery.
When the Maine Mega Millions winner receives the $1.35 billion payout, the state could receive as much as $96.4 million in taxes. Unlike other billionaires, the winner will have to pay most state and federal taxes before they get their money.
The wealthiest taxpayers often do everything they can to evade paying taxes. Some of them cheat. Mostly, that’s never known. But a recent New Yorker magazine disclosed one classic story.
To try to get all households to pay their fair share as set by law, the IRS and Maine Revenue Services conduct audits and investigations. That’s the prime reason for their existence.
If they succeed, they could collect billions in legitimate revenue. That would reduce the tax burden on smaller taxpayers. And it should reduce the need for government to borrow money to cover approved costs. Borrowing means paying interest and taxpaying households foot that bill.
The money the Mega Millions winner has brought to Maine was raised from players in other states and that cash will reduce the state’s need to borrow and its related costs. That saving will flow through into the calculation of just how much money is needed from taxes.
Maine taxpayers benefit when the tax bill is paid with other people’s money. It starts with everybody supposedly paying their fair share as required by law, and a lottery bonanza is a plus.
Not everybody is affected. The world of taxpayers is only a fraction of the total number of households. Right now, about 60 percent of households pay no federal income tax. Under so-called progressive taxation, each household is expected to pay more as its income increases, but many average people are exempt.
Ways of making money have become more complex as have ways of dodging tax payments. The wealthiest also have the most complicated incomes, and they can afford to hire experts to help them thread their way around payments to the IRS.
Over time, the IRS’s ability to ensure that those with larger incomes pay their fair share has eroded. The number of taxpayers and the complexity of tax returns have increased, but the number of IRS agents available to review returns and conduct audits has decreased. Taxation is getting ahead of the tax collectors. The IRS’s computers are ancient and use outmoded systems.
If the tax collection agency lacks the tools to collect taxes from the wealthiest, they can avoid paying everything the law intended. If Congress understands that, then its failure to support the IRS amounts to taking it easy on the rich. It’s possible that such people could express their gratitude for benefitting from lax enforcement by contributing to the campaigns of those in Congress who made it possible.
The renewed effort to step up the collection of taxes is embodied in the Inflation Reduction Act passed last year by Congress with only Democratic votes. Opposition has come exclusively from Republicans.
After the GOP took control of the House this month, it passed a bill along strict party lines, repealing funding over the next 10 years for new agents and for upgrading equipment. The GOP argued that the new law would add 87,000 employees who would go after middle-class taxpayers. They ignored the exemption for most households or decided to see “middle class” income at new, high levels.
Some expressed the view that the rich always find ways to avoid taxes, so the IRS would end up targeting middle-income families and small businesses. In short, there was no point in going after the rich, because the IRS was doomed to fail, and it would end up only getting middle income people to pay what they owe. That might seem unfair. Apparently, tax evasion for all would be preferable.
Treasury Secretary Janet Yellen, overseer of the IRS, stated that households with incomes below $400,000 would not be audited by the new personnel. Her promise was greeted with partisan disbelief. Opposition to improved IRS audits on the wealthy depends on convincing average people that they are really the targets of tougher enforcement rather than its beneficiaries.
At the policy level, the GOP opposition to improved tax collection from the rich is consistent with Republican policies aimed at cutting government spending by starving it of revenue and reducing taxes on the wealthiest households. Among programs targeted for cost cutting are Social Security and Medicare.
The Senate, under narrow Democratic control, and President Joe Biden will not go along with the House GOP. But Republicans seem to believe that their anti-IRS vote will create a winning issue in 2024. While IRS improvement is expected to take 10 years, the Democrats face the challenge of producing positive results quickly.