As further proof that our tax system is broken, consider this recent revelation by reporters at ProPublica: If you're a member of the working poor — people who earn less than $20,000 — you are nearly as likely to be audited as people whose earnings put them in the top 1 percent. It might seem foolish of the IRS to chase after low-paid taxpayers for a few hundred bucks rather than, say, a reality TV show host claiming a suspect business loss of $72.9 million. But years of withering budget cuts by congressional Republicans have left the IRS so stripped of experienced staff that it can only audit 1.56 percent of the richest Americans' returns. Auditing the poor is simpler — they can't afford tax lawyers — and is thus "the most efficient use of IRS's limited examination resources," the agency says.
As we've been reminded this past week, the U.S. does not have one income tax system, but two. One is for salaried schmucks whose income is reported directly to the government and who enjoy precious few deductions or options for cheating. The other is for the self-employed, owners of limited-liability companies, hedge-fund managers, and the very wealthy. For them, the tax code is like a Christmas tree laden with shiny baubles and surrounded by ribboned presents — deductions, tax-avoidance schemes, and loopholes of all kinds. In the deep forest of a 400-page tax return, it is easy to hide questionable claims, like classifying your daughter — an executive in the family firm — as a "consultant" so you can write off her $747,622 salary as a business deduction. Fraud, the IRS estimates, will cost the government $7.5 trillion in taxes not paid over the next decade. Every dollar that cheats do not pay, of course, is either paid by the "losers and suckers" or added to the trillions in debt we are handing off to our children. Americans deserve a much fairer and simpler tax code, but we will not get one until we demand it.
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