BCT Editorial – 7/25/06

This page was last updated on July 25, 2006.

Lottery winners; Editorial; Beaver County Times; July 25, 2006.

Below is a detailed critique of the subject editorial.

“Bush White House finds another way to reward the wealthy

“Tax cuts aren’t the only way the Bush administration can help its rich friends avoid paying taxes.”

[RWC] As you will read, this editorial is full of BS.

“It’s also giving them a big boost by gutting the Internal Revenue Service.

“According to wire service reports, the federal government is moving to eliminate the jobs of nearly half of the lawyers at the IRS who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer part of their fortunes to their children and others.”

[RWC] Why not specify the “wire service(s)” and cite the reports? This is the equivalent of quoting an anonymous source.

Are these the same wire services that told us “12 Alive!” regarding the Sago mine explosion?

FYI, the reason the editorial author went with “wire service reports” is that he didn’t want to tell us he relied on only one source for this editorial. You see, David Cay Johnston, whose book the editorial references below, was also the source for the “wire service reports.”

“The administration plans to cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, in less than 70 days.

“These cuts are ridiculous. The IRS should be adding lawyers and support personnel because the way in which the present tax code is written is an invitation to cheat.”

[RWC] Here’s what the editorial didn’t tell us about the “wire service reports.” You see, the reports say IRS Deputy Commissioner Kevin Brown asserted “the money saved by eliminating the estate tax lawyers would be used to hire revenue agents to audit income tax returns, especially those from people making over $1 million.”

Why not just transfer the estate tax lawyers? According to David Cay Johnston, “Mr. Brown said that civil service rules barred the estate tax lawyers from moving over to audit income taxes. An I.R.S. spokesman said that the agency had asked for permission to allow such transfers twice, but that the Office of Personnel Management had not responded.”

“David Cay Johnston wrote about this in his 2003 book ‘Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich - and Cheat Everybody Else.’ (Johnston is a Pulitzer Prize winning reporter for The New York Times.)”

[RWC] Forgive me if I’m skeptical about NY Times so-called “reporters.” In 2003, we learned NY Times “reporter” Jayson Blair was caught making up and plagiarizing stories. In 1932, NY Times “reporter” Walter Duranty received a Pulitzer Prize for his reports that whitewashed Stalin’s abuses. For example, when millions of Russians were dying from starvation at a rate of about 25,000/day, Duranty reported, “There is no famine or actual starvation nor is there likely to be.”

“Johnston reported that since tax code revision in 1997, cheating has become even more prevalent among wealthy individuals making gifts to heirs.

“By law, the IRS is required to audit gift tax returns in three years or accept them as filed. The returns can run to dozens of pages with appraisals.

“Because of the paucity of IRS tax lawyers and the number of complex gift tax returns, the average audit of returns that were examined lasted just 31 minutes.”

[RWC] According to Mr. Johnston, “Mr. Brown said that careful analysis showed that the I.R.S. was auditing enough returns to catch cheats and that 10 percent of the estate audits brought in 80 percent of the additional taxes. He said that auditing a greater percentage of gift and estate tax returns would not be worthwhile because ‘the next case is not a lucrative case’ and likely to be of relatively little value.”

Does anyone care to guess why the editorial failed to mention this?

“‘The widespread knowledge among tax professionals that the IRS cannot audit all gift tax returns, and must give a cursory review to those it does examine, created an incentive for taxpayers to aggressively undervalue assets,’ Johnston wrote. ‘Adding the three-year limit on challenges to gift taxes made playing the audit lottery much more attractive and partly explained why the number of million-dollar-plus gift tax returns jumped 21 percent after the law changed’ in 1997.

“In effect, the White House has lowered the odds of the wealthy hitting the gift-tax lottery.”

[RWC] I know it may come as a surprise to the editorial author, but George Bush was not the President in 1997, Bill Clinton was. At that time, Mr. Bush was serving his first term as governor of Texas.

“But don’t worry. The IRS will still be vigilant when it comes to monitoring poor and middle-class Americans. That’s because their employers report what they make to the IRS, as do banks on the money they earned in interest and paid on mortgages.”

[RWC] I hate to break this to the editorial author, but whether you have a low or high income, “employers report what they make to the IRS, as do banks on the money they earned in interest and paid on mortgages.”

“Here’s how skewed the audit system has become. Johnston reported the working poor who applied for the earned income tax credit are three times more likely to be audited by the IRS than the affluent and rich.”

[RWC] Hmm. Could it be that there are a lot more people applying for the EITC than there are “affluent and rich?” Here’s what I mean. About 64 million people who file returns are potential recipients of the EITC handout. Depending on your definition of “affluent and rich,” the number of returns ranges from 1.3 million (above $295,000/year) to 13 million (above $95,000/year). Using this data, those claiming the EITC should be audited at a rate from five to 50 times as often as “the affluent and rich.” A rate of three times seems low.

Though you won’t read it in the editorial, the earned income tax “credit” is really a backdoor welfare payment. Even if you have zero tax liability, people who qualify can apply for the EITC and receive a “refund” check for taxes they never paid.

“The most the working poor could receive in EITC in 2002 was $4,140. Meanwhile, Johnston reported the average gift tax return understated the true value of the gift by $303,000.

“That pretty much sums up this administration’s priorities, doesn’t it?”

[RWC] For grins, let’s wrap our heads in duct tape and assume all the “facts” the editorial asserts are true. Even if take this great leap of faith, a review of the big picture shows it’s ridiculous to claim the Bush administration helps “its rich friends avoid paying taxes.”

Consider the following data from the Tax Foundation, a source also used by Times editorials.

· 91 million Americans who file a tax return either have zero liability or receive a “refund” courtesy of the EITC. That’s 32% of people who file a tax return.

· Another 15 million low-income earners didn’t file a return at all.

· Quoting the TF, “Despite the charges of critics that the tax cuts enacted in 2001, 2003 and 2004 favored the ‘rich,’ these cuts actually reduced the tax burden of low- and middle-income taxpayers and shifted the tax burden onto wealthier taxpayers.” The TF further stated, “7.8 million low and middle-income families had their entire income tax liabilities erased by the cuts. More than 90% of the 7.8 million families knocked off the tax rolls by the Bush tax cuts earn less than $50,000 per year. Another 9.3% of these families earn between $50,000 and $100,000, while just 0.06% earn more than $100,000.”

· The top 1% of filers paid over 34% of total taxes paid. The top 5% paid over 54% and the top 50% paid over 96%. Of course, that means the bottom 50% paid less than 4%.

Yeah, that President Bush sure is helping “its rich friends avoid paying taxes” while simultaneously screwing “the working poor.”