The rich get more (audits)

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Article Highlights

  • Chance of being audited for wealthiest Americans increased 3X from '08 to '11

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  • Since IRS enforcement budget increased, it has paid wealthiest more attention

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  • New chart: IRS tax audits from 2008-2012 by income bracket

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This article appears in the June 17, 2013, issue of National Review.

The Internal Revenue Service (IRS) has made news over the past several weeks as details of the targeting of conservative 501(c)(4) groups for extra screening have come to light, causing Americans to question the impartiality of one of the most notorious arms of government. Although groups associated with the Tea Party had complained of harassment from the IRS for years, it was only when the IRS acknowledged the extra scrutiny given to these groups that the government and many ordinary Americans were forced to grapple with the knowledge that one of the most intrusive federal agencies may not be as neutral as they had hoped.

It will take months, if not years, for the IRS scandal to play itself out. The crucial question will be whether the harassment was a top-down political strategy or the result of lower-level agents run amok. It may remain a mystery.

But the harassment of tea-party organizations is not the only way the IRS has gone after President Obama’s opponents. Over the past few years, the IRS has dramatically increased enforcement actions against the president’s favorite nemesis, “the rich”—and the top-line details are chilling.

Between 2008 and 2010, the IRS increased audits of all income brackets, but the most dramatic increase in audit rates was for taxpayers with adjusted gross incomes above $500,000, as illustrated in the accompanying chart, which shows the percentage of returns that were audited in each year between 2008 and 2012, by income level. The year a return is audited follows the year for which a return is filed, so returns audited in 2008, for example, are for income from 2007.

The increases are striking. Audit rates for high-income taxpayers jumped dramatically between 2008 and 2011. While the chances of being audited for filers reporting no income increased from 2.15 percent to 3.42 percent, the chances for filers reporting between $500,000 and $1 million almost doubled, from 2.98 percent to 5.38 percent.

The chance of being audited for the highest-income earners increased even more dramatically. In 2008, a taxpayer making between $5 million and $10 million had a 6.47 percent chance of being audited; by 2011, that chance was 20.75 percent. For filers making over $10 million, the chance of being audited increased from 9.77 percent to 29.93 percent.

With the odds of being audited just about tripling for the wealthiest on Obama’s watch, the IRS has been unleashed like never before. If the IRS is simply using income to pick its targets, then its actions are legal. What remains to be seen is whether the skyrocketing audits have been specifically aimed at Republicans.
The IRS has enough audit detail in its databases to reveal such political bias if it exists, and one can expect a flurry of data requests to flow from congressional Republicans in coming months. The tea-party scandal may well be just the tip of the iceberg.

-Kevin Hassett is the John G. Searle Senior Fellow and Director of Economic Policy Studies at AEI

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About the Author

 

Kevin A.
Hassett
  • Kevin A. Hassett is the State Farm James Q. Wilson Chair in American Politics and Culture at the American Enterprise Institute (AEI). He is also a resident scholar and AEI's director of economic policy studies.



    Before joining AEI, Hassett was a senior economist at the Board of Governors of the Federal Reserve System and an associate professor of economics and finance at Columbia (University) Business School. He served as a policy consultant to the US Department of the Treasury during the George H. W. Bush and Bill Clinton administrations.

    Hassett has also been an economic adviser to presidential candidates since 2000, when he became the chief economic adviser to Senator John McCain during that year's presidential primaries. He served as an economic adviser to the George W. Bush 2004 presidential campaign, a senior economic adviser to the McCain 2008 presidential campaign, and an economic adviser to the Mitt Romney 2012 presidential campaign.

    Hassett is the author or editor of many books, among them "Rethinking Competitiveness" (2012), "Toward Fundamental Tax Reform" (2005), "Bubbleology: The New Science of Stock Market Winners and Losers" (2002), and "Inequality and Tax Policy" (2001). He is also a columnist for National Review and has written for Bloomberg.

    Hassett frequently appears on Bloomberg radio and TV, CNBC, CNN, Fox News Channel, NPR, and "PBS NewsHour," among others. He is also often quoted by, and his opinion pieces have been published in, the Los Angeles Times, The New York Times, The Wall Street Journal, and The Washington Post.

    Hassett has a Ph.D. in economics from the University of Pennsylvania and a B.A. in economics from Swarthmore College.

  • Phone: 202-862-7157
    Email: khassett@aei.org
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