THE RICH GET RICHER BUT THEY MAY HAVE TO PAY THE TAXES THEY OWE
The wealth of rich Americans is growing by leaps and bounds, but CEO’s pay raises have slowed a bit. The Internal Revenue Service (IRS) is beginning to crack down on wealthy tax dodgers, but Republicans in Congress are trying to cut the funding for this IRS crackdown.
(Note: If you find my posts too long to read on occasion, please just skim the bolded portions. They present the key points I’m making. Thank you for reading my blog!)
The world’s wealthiest 500 people each added an average of $1.7 billion to their wealth in the first six months of 2023. The world’s wealthiest person added almost $100 billion to his wealth. For the members of the Bloomberg Billionaires Index, it was an increase of $14 million a day during the first half of the year. [1]
However, for CEOs, 2022 wasn’t such a great year as their typical compensation rose less than 1%, although median pay was still a wealth-creating $14.8 million. This was the smallest increase since 2015. However, their pay had increased a healthy 17% in 2021. [2]
The small 2022 increase for CEOs meant that the pay ratio when compared to the average worker actually narrowed a tad – for the first time in many years. Median pay for workers rose to just over $77,000, meaning CEO pay was 186 times that of workers. This pay gap is, nonetheless, extremely high by historical standards.
The CEO of Alphabet (the parent corporation of Google) had the top compensation package, which was valued at $226 million. The great majority of this was from a grant of restricted stock options, which Google gives to its CEO every three years. Underscoring that CEO pay is not linked to actual performance, this huge reward was given just before Google laid off tens of thousands of employees and after shareholder returns fell by 39% last year.
Meanwhile, the Internal Revenue Service (IRS) is showing what it can do if given the resources to audit wealthy tax dodgers. In the past few months, it has collected $38 million of back taxes owed by about 175 wealthy individuals. Many of these individuals are likely to face criminal investigations. This is just the tip of the iceberg. A report in 2021 estimated that the 1% of taxpayers with the highest incomes fail to report and pay taxes on 20% (one-fifth) of their incomes. [3]
The IRS got a new commissioner in March 2023 and was given an additional $80 billion in funding over the next ten years by the Inflation Reduction Act of 2022, passed by Democrats in Congress and President Biden. This increased funding is for IRS enforcement, customer service, and technology improvements. The IRS reports that with the increased funding it was able to answer 3 million more calls from taxpayers in the 2023 tax-filing season than in 2022, while cutting waiting times to three minutes from 28. In addition, it has processed the backlog of 2022 tax returns.
Republicans in Congress began cutting IRS funding in 2010, cumulatively cutting its annual budget by $2.5 billion (22%) by 2021. As a result, IRS enforcement staff has been reduced by about one-third (15,000 employees). Therefore, the audit rate for taxpayers with incomes over $1 million has fallen by 71% and for large corporations by 54%. The outcome has been systematic tax evasion by wealthy taxpayers and the loss of an estimated $600 - $700 billion of revenue each year that would help fund the federal government’s programs and operations. Overall, in 2021, the IRS had roughly the same number of employees (79,000) as in 1970, despite great growth in the economy and the complexity of tax laws. [4]
Republicans are continuing to work to cut IRS funding. They demanded a $1.4 billion cut to the IRS in the debt ceiling and budget deal recently passed by Congress. In a related agreement, they demanded cuts in IRS funding of another $20 billion over the next two years.
I urge you to contact President Biden and your U.S. Representative and Senators to ask them to oppose any cuts to funding for the IRS. Tell them you support the IRS’s efforts to enforce our tax laws and make everyone pay the taxes they owe. You can email President Biden at http://www.whitehouse.gov/contact/submit-questions-and-comments or you can call the White House comment line at 202-456-1111 or the switchboard at 202-456-1414. You can find contact information for your US Representative at http://www.house.gov/representatives/find/ and for your US Senators at http://www.senate.gov/general/contact_information/senators_cfm.cfm.
[1] Business Talking Points, 7/4/23, “Musk, Zuckerberg lead surge as rich get richer,” The Boston Globe
[2] Olson, A., 6/1/23, “Smaller raises for CEOs, but pay still towers over workers,” The Boston Globe from the Associated Press
[3] Hussein, F., 7/8/23, “IRS says it collected $38 million from more than 175 high-income tax delinquents,” The Boston Globe from the Associated Press
[4] Facundo, J., 1/26/23, “Reanimating the taxman,” The American Prospect (/https://prospect.org/economy/2023-01-/26-reanimating-taxman-internal-revenue-service/)