Tax Day 2019: Millions of people cheat on their taxes, but few go to jail

To date, millions of households and businesses in the United States have filed their tax returns for 2018.

If the economic forecasts are accurate, the IRS will collect about $ 3.5 billion from taxpayers to fund everything from the FBI to the US military, through food coupons, insurance- sickness and social security. And if these forecasts are accurate, there is about $ 1 trillion less than Congress needs to fund the government.

Experts may blame this fiscal gap on three factors: corporate tax cuts imposed by the GOP, wealthy Americans hiding money in foreign accounts and the growing number of baby boomers. retired boomers who benefit from social security.

All three are responsible, but that's not the only reason the US government is running out of money.

Millions of Americans simply do not pay their taxes. For about 30 taxpayers who complete their tax returns each year, a business or household does not do so. The sum they collectively owe is not insignificant – about 14 million taxpayers owed $ 131 billion in taxes and penalties to the federal government in 2017, according to the latest data from the federal government. IRS.

These numbers have exploded in recent years. Since 2002, the number of taxpayers who owe money to the IRS has tripled, as has the amount of unpaid taxes. The economic hardships of the Great Recession are for many, but the never-ending budget cuts of the IRS have prevented the agency from ensuring that everyone pays its fair share. While the amount of unpaid taxes is increasing, tax crime investigations have been declining for five years.

The Inspector General of the Treasury Tax Administration is one of the worst offenders. Thousands of employers are fleeing every year with tax embezzlement, warned the IRS watchdog in 2017, and that probably will not change if employers do not risk jail time.

Employers pocket taxes and suffer little impact

Americans often do not know how much the US government depends on payroll taxes. After income taxes, employment taxes are the largest source of revenue for the federal government. The IRS collected $ 1.1 trillion in employment taxes in 2017, about 38% of all federal taxes collected.

Companies retain 7.65% of each employee's payroll on their payroll, and employers set aside their own contribution of 7.65% per employee. These are called FICA (Federal Insurance Contributions Act) taxes and finance government benefits such as social security, disability insurance and health insurance.

Each month, employers are expected to send the IRS the combined 15% FICA tax payments. The vast majority do it. Some send payments a month or two late and pay penalties for the delay. But a growing number of employers are unaware of the whole process – and are escaping from it, according to the IRS's main watchdog. They retain employees' social security contributions, but keep them for themselves.

This is how Treasury Officer Gregory Kutz described the problem in a 2017 report:

Sometimes, employers in economic difficulty "borrow money for a short time" to use the taxes withheld to finance their activities. Other employers voluntarily hijack the taxes withheld for their personal benefit, for example for the purchase of luxury items, vacations and real estate.

In 2017, about 6.9 million employers had not paid these taxes and the IRS had hit them with a total of $ 7 billion in penalties. But fines and seizures of property have done little to stop bad behavior.

The Treasury watchdog division is particularly concerned about the appearance of "blatant" cases: companies that have not paid employment tax for five years or more.

In 1998, only about 5,000 employers had not paid their social security contributions for at least five years. In December 2015, according to IRS records, that number had more than tripled to 17,000. According to Kutz, one of the reasons this happens is that the IRS pursues fewer tax crimes, so that employers know that they have a good chance of getting out of it.

US Treasury Department

Refusing to pay taxes is a federal crime, punishable by a fine of up to $ 10,000 and five years in prison. There are fewer than 100 criminal convictions a year – a number "so tiny, in our opinion, there is probably little deterrent effect," wrote Kurtz.

In the two years since the report of the Inspector General, the criminal division of the IRS has increased the number of investigations into the job tax and referred more cases to the federal government. cases before the Department of Justice for prosecution. But the Department of Justice has chosen to prosecute fewer employment tax-related crimes since 2016, resulting in significantly fewer convictions:

US Treasury Department

In fact, prosecutions for all tax crimes have declined in recent years and the Trump administration's budget cuts in the IRS have compounded the problem.

IRS does not have enough agents to collect unpaid taxes

One of the reasons that people owe more money to the IRS is that the agency does not have enough investigators. In October, the head of the IRS Judicial Police, Don Fort, told Bloomberg that the agency had the same number of special agents – about 2,200 – as it was 50 years ago, even if the number of tax filers has increased and financial crimes have multiplied. complex, according to Bloomberg. (The Trump administration eliminated even more posts last year.)

The Office of the Inspector General had urged the IRS in 2007 to investigate the most egregious cases – companies that had not paid tax on labor for more than five years or had to pay more than one million dollars.

The IRS said it was unlikely that would happen.

"The biggest challenge facing both our civil and criminal lawsuits with respect to job-related tax fraud is the significant and lasting decline in the resources of the IRS (…). It's a reality that no strategy can overcome, "wrote Richard Weber, head of the agency's criminal investigations. , in 2017.

Trump and his Republican allies in Congress bear some responsibility.

Eight years ago, the GOP began to aggressively reduce the IRS budget each year. Since then, his law enforcement staff has decreased by one-third. Meanwhile, spending within the agency has decreased by $ 533 million, according to CNBC.

It is therefore not surprising that more and more people are escaping tax evasion. In 2010, the IRS opened 1,948 investigations into tax offenses – in 2017, the number of new cases had dropped to 1,188.

Trump, whose family has been accused of tax evasion, is only too eager to continue to weaken the law enforcement powers of the agency. His administration removed 140 additional special agents from the IRS last year and his proposed budget for 2020, for example, would reduce funding for the IRS application by nearly $ 154 million. of dollars.

This would make it even more difficult for the IRS to collect unpaid taxes, further pushing the US government to go into debt.