"87,000 Agent Smiths"
Don't look now, but your tax-collecting
overlords just got a big, fat raise...
by Joel Bowman
“Taxes are the price we pay for civilization”
~ Justice Oliver Wendell Holmes
“Civilization is the price we pay for taxation”
~ Joel Bowman (with no apologies to OWH)
"As if to underscore the point of last Sunday’s missive - What’s in a Word? - the fraudulently named Inflation Reduction Act (IRA) slithered through the palm-greased halls of Congress during the week. Much ballyhooed by the fawning press, which never saw a check they didn’t want someone else to sign, the act passed the Senate by the barest of purely partisan margins (50-51, with president-in-waiting, Kamala Harris, casting the deciding vote) before sailing through Nancy’s House Friday afternoon.
As for actually doing what it says on the box, the $433 billion dollar extravaganza aims to reduce inflation by doing more of exactly what caused the 40-year high in rising prices in the first place... which is to say, spending more money the government doesn’t have on things the country doesn’t need and its citizens don’t want. Will it work? Depends who you ask. (And what you mean by “work.”)
The Penn Wharton Budget Model predicts the IRA’s impact on inflation to be “statistically indistinguishable from zero.” That’s expensive business school-speak for “bugger all.” The model also predicts lower productivity, as measured by GDP, for the remainder of the decade while “slightly increasing GDP by 2050.”
The Tax Foundation’s General Equilibrium Model, meanwhile, expects the IRA to “reduce long-run economic output by about 0.1 percent and eliminate about 30,000 full-time equivalent jobs in the United States. It would also reduce average after-tax incomes for taxpayers across every income quintile over the long run.”
And here’s University of Chicago economist, Casey Mulligan, who reckons the IRA will...
• Reduce employment by 900,000
• Reduce annual GDP by 1.2%
• Reduce Average Household income by roughly $1,200
Mr. Casey also estimates the rate of inflation and the federal budget deficit are both “likely to rise, not fall, as a result of the IRA.”
Now, your humble Weekend Editor harbors no such pretense to knowledge. We have no idea whether the market will go up or down on Monday, much less what the growth rate of a $20 trillion+ economy might be ten... twenty... thirty years from now. And neither, by the way, does anyone else. It’s difficult to make predictions, as they say, especially about the future. So for now, let us return to the present act.
Among the IRA’s bulging, multi-billion dollar line items, working Americans were quick to notice a whopping $80 billion earmark for the Internal Revenue Service. As we mentioned during the week, if that sounds like a lot of money... it’s because it is. (The current annual budget for America’s least favorite “service” is a comparatively modest 12.6 thousand million dollars.)
What’s a government agency to do with all those fresh new Benjamins, you ask? Why, hire 87,000 new Agent Smiths, of course! (You’ll recall Agent Smith as the creepy, G-man AI program plugged into the Matrix, the one charged with eliminating any human simulacra which might bring about instability in the simulated reality. Only now, you’re the “simulacra” and the reality is about to get very real indeed.)
Tax Revolt! Or not… One wonders whether such a turbo-charged tax enforcement mechanism seems antithetical to the values of a country that revolted in full blown revolution over a paltry stamp tax? Recall that it was the Stamp Act, Sugar Act, Townshend Acts, and Intolerable Acts – passed between 1760-1775 – which finally set the colonists against their British overlords.
As for income taxes, corporate taxes and payroll taxes, the colonists had no truck with the redshirts there... probably because there were no such taxes in effect at the time. In fact, the average tax levied on colonial America - mostly collected through trade tariffs and excise taxes on certain goods at point of sale - is estimated to have been between 1-1.5%, a rate that would have appeared attractive even to the British themselves, who at the time suffered a rate roughly 5 times that (between 5-7%) back home.
But fear not, descendants of mighty patriots, fruit of the founding fathers, it’s not as though the goose-stepping platoons of federal tax agents are going to use the $46 billion of their new kitty apportioned for “enforcement” to... you know... do any hardcore enforcing. It’s not like special agents must “carry a firearm and be willing to use deadly force, if necessary.” Oh, wait... scratch that.
Shoot to Kill: Ok, ok... so the new special agents will be trained to “shoot to kill.” No biggie. They’re going after the big fish, right? And if you wanna catch the big fish, you gotta use a big line...
According to Forbes Magazine, there were 735 billionaires in the US in 2021. The New York Times puts the figure at 935. In any case, dear reader, they walk among us. And, of course, that’s a problem. Never mind that Elon Musk, to take the most conspicuous example, cut the IRS an $11 billion check last year, the most paid by any single citizen in American history and, in itself, almost enough to fund the entire IRS... and never mind that, like him or not, love or hate his companies, agree or disagree with his politics, Mr. Musk nevertheless employs 110,000 people across his various businesses, each of whom (presumably) pays their own taxes.
Let’s go instead with Elizabeth Warren’s assessment of the situation and assume Musk is a “freeloader” and needs to “pay his fair share.” And let’s go ahead and assume his “fair share” is... 100%. Everything he owns. And let’s say that goes for ALL America’s billionaires. (After all, Bernie Sanders said they “shouldn’t exist.” Who are we to argue with The Bern?) So you confiscate 100% of the billionaire class’s wealth. At $4.7 trillion, you’d have enough money to cover the nation’s bar tab for – carry the seven, divide by hypotenuse, sin cos tan – less than one fiscal year.
Now, having destroyed an entire class of ultra wealthy “moochers,” (and, presumably, their respective industries, responsible for employing millions and millions of Americans, on whom the state also relies for tax revenue) where do we suppose this income starved football stadium of Agent Smiths would turn next? Might they come knocking up and down your street?
Not a chance, says Madam Secretary Janet Yellen. In a public letter to IRS Commissioner Charles Rettig, published Wednesday, Ms. Yellen left no doubt as to who would be targeted...“I direct that any additional resources - including any new personnel or auditors that are hired - shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels,” she wrote.
Hmm... seems like a rather specific dangling qualifier there, no? One wonders, what might these “relative historic levels” look like, exactly? According to a report from the Government Accountability Office (GOA), scintillatingly titled “Tax Compliance Trends of IRS Audit Rates and Results for Individual Taxpayers by Income” (go ahead, knock yourself out here), audit rates for Americans earning between $25,000 to $200,000 are down 76% from their 2010 levels. For those earning less than $25,000, audit rates are 61% lower. And for those earning between $200,000 to $500,000 audit rates are off 92% from 2010, their “relative historic level.”
In other words, 87,000 new IRS agents, armed with $700,000 worth of new ammo (purchased, according to the agency itself, in June and July of this year), could double the rate of audits on those earning under $25,000... quadruple audits on those in the $25,000 - $200,000 bracket... and increase tenfold the audits on those earning between $200,000-$500,000... and still fall within Yellen’s “relative historic levels.”
What does this mean for working and middle class Americans, for small businesses and family start-ups, for the entrepreneurial engine room of a nation that was founded on the idea of freedom from oppressive taxation without fair representation?"
“Knock, knock.”
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