Wednesday, February 1, 2012

Will the IRS be Busy Next Year?

Copyright, The New York Times Company

Republican and Democratic presidents are quite different in their enforcement of tax laws and their administration of the Internal Revenue Service.

Republicans are constantly telling us how different they are from the Democrats, and vice versa. But in many ways Republican and Democratic politicians are a lot like Coke and Pepsi – very different marketing but essentially made of the same chemicals.

President Obama, for example, has retained the Republican policy of keeping prisoners at Guantánamo Bay. And as Massachusetts governor, Mitt Romney put into place a state health insurance plan that in many ways resembles the federal Affordable Care Act enacted by a Democratic Congress.

Economists have studied the history of policy making by Republican and Democratic presidents. They find a few differences here and there, but for the most part both types of presidents play to the same middle of the country and to many of the same interest groups.

But one significant difference between the two parties had been their administration of the Internal Revenue Service, the agency of the United States Treasury that enforces tax rules.

A dissertation written in 2005 by Valentin Estévez at the University of Chicago found that:

¶ “Under Democratic presidencies the audit rate of income tax returns is higher than under Republican presidencies even after the inclusion of various political and economic controls.”

¶ “During Democratic presidencies the I.R.S. tends to audit fewer individual returns and more corporate returns than during Republican presidencies.”

¶“Parties may be in fact resorting to more subtle redistributive policies, such as the likelihood of an audit, to favor their constituency.”

I.R.S. data released since Mr. Estévez’s dissertation have confirmed the tendencies of Democratic and Republican presidents to use I.R.S. audits differently. Twelve percent of millionaire earners were audited in 2011, when Barack Obama was president, compared with 5 to 7 percent audit rates for 2004-9 (George W. Bush was president most of that time). Among people earning less than $200,000, a far lower percentage of returns are audited (about 1 percent in 2011).

Steven Miller, deputy I.R.S. commissioner for services and enforcement, told The Associated Press, in reference to the recent audit rates, that “I.R.S. officials said the high ratio was part of an effort to demonstrate that tax laws are applied fairly.”

If these past audit patterns continue, whether or not millionaires can expect to meet I.R.S. auditors in 2013 and beyond depends a lot on whether President Obama defeats the Republican nominee.

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