This post was guest authored by Anissa Arakal.
As President Trump leaves the White House to retreat to a billionaires’ paradise in either the skyscrapers of New York or the golf courses of Florida, his multi-million-dollar audit battle may make him feel more out of place than ever before.
“I am audited when I shouldn’t be audited… I tell my people: ‘Why is it that every single year, I’m audited, whereas other people that are very rich … are never audited’ — and they don’t even know what I’m talking about when I talk about audits,” President Trump to CNN’s Anderson Cooper, according to NBCNews.
Mr. Trump is correct that rich people rarely get audited, but we are answering a different question: Why is the U.S. auditing system favoring rich white populations, and increasingly auditing poor communities?
In 2018, millionaires were about 80% less likely to be audited than they were in 2011, according to ProPublica. In contrast, the rate of audits for poor communities has remained consistent and is becoming an increasing percentage of the IRS’s total audit efforts. This inversely-proportional relationship continues to feed a system that profits off the poor and turns a blind eye to the wealthy.
The audit rate for wealthy Americans has significantly decreased as a result of two pressures: first, the super-rich and corporations pay armies of lawyers, accountants, and lobbyists to dispute their tax bills and even write the language in the tax code for lawmakers, according to the New York Times. Second, congressional Republicans have slashed the IRS budget over the years, leading to a critically underfunded and understaffed IRS.
A gutted IRS lacks the personnel to scrutinize specialized tax schemes from corporations and the wealthy. The IRS now has fewer than ten thousand revenue agents, a record low not seen since 1953, according to ProPublica. These limited resources result in auditors focusing on taxpayers with more straightforward automated interactions. Primarily, Earned Income Tax Credit (EITC) forms, a refundable tax credit available to low-income families. While the tax code may be technically progressive — charging the highest tax rates to those most able to pay them — it is utterly regressive in practice.
Audit trends in the U.S. showcase the rampant racial and economic inequality embedded and upheld in our financial system. The five counties in the US with the highest audit rates are all predominantly African American, rural counties in the Deep South, according to ProPublica. High audit rates follow in largely Hispanic counties in southern Texas, low-income white communities in Kentucky, and Native American reservations within South Dakota.
More than half the population of Humphreys County, Mississippi, the most audited county in the U.S., uses EITC forms. Because EITC forms are largely automated, it is easier for the IRS to scrutinize for small mistakes and audit at a higher rate than with the large, complicated tax returns filed by the wealthy. Contesting audits delays the rest of a tax refund, and low-income families are often not in the financial position to fight an appeal.
While the IRS continues to extract wealth from low-income taxpayers, America’s wealthy are audited at dramatically lower rates. The top 1% of taxpayers by income were audited at a rate of 1.56%. EITC recipients, who typically have an annual income under $20,000, were audited at a rate of 1.41%, according to ProPublica. The IRS has pursued a strategy of collecting revenue in small sums from millions of poor Americans and turning a blind eye to the country’s most wealthy.
Seemingly separate tax systems for the super-rich and low-income families are in fact directly correlated. As Anand Giridharadas writes, “tax is a zero-sum game”: while wealthy elites use lawyers to dodge taxes and create deductions, white, Black, and brown working families are paying more and more of the bill. So, while President Trump publicly harps over his taxes being unfairly scrutinized, Here at Take on Wall Street, we know that you can’t take on corporate power without unrigging the rules of the tax code.