Parties fight over more muscle for IRS

 

Gordon L. Weil

Maine taxpayers won the lottery.

When the Maine Megabucks winner receives the $1.35 billion payout, Maine could receive as much as $96.4 million in taxes. Unlike other billionaires, the winner will have to pay most state and federal taxes before they get their money.

The wealthiest taxpayers do everything they can to evade paying taxes. Some of them cheat. Mostly, that’s never known. But a recent New Yorker magazine disclosed one classic story.

To try to get all households to pay their fair share as set by law, the IRS and Maine Revenue Services conduct audits and investigations. That’s the prime reason for their existence.

If they succeed, they could collect billions in legitimate revenue. That would reduce the tax burden on smaller taxpayers. And it should reduce the need for government to borrow money to cover approved costs. Borrowing means paying interest and taxpaying households foot that bill.

The money the Megabucks winner has brought to Maine was raised from players in other states and that cash will reduce the state’s need to borrow and its related costs. That saving will flow through into the calculation of just how much money is needed from taxes.

Maine taxpayers benefit when the tax bill is paid with OPM – other people’s money. It starts with everybody supposedly paying their fair share as required by law, and a lottery bonanza is a plus.

Not everybody is affected. The world of taxpayers is only a fraction of the total number of households. Right now, about 60 percent of households pay no federal income tax. Under so-called progressive taxation, each household is expected to pay more as its income increases, but many average people are exempt.

Ways of making money have become more complex as have ways of dodging tax payments. The wealthiest also have the most complicated incomes and they can afford to hire experts to help them thread their way around payments to the IRS.

Over time, the IRS’s ability to ensure that those with larger incomes pay their fair share has eroded. The number of taxpayers and the complexity of tax returns have increased, but the number of IRS agents available to review returns and conduct audits has decreased. Taxation is getting ahead of the tax collectors. The IRS’s computers are ancient and use outmoded systems.

If the tax collection agency lacks the tools to collect taxes from the wealthiest, they can avoid paying everything the law intended. If Congress understands that, then its failure to support the IRS amounts to taking it easy on the rich. It’s possible that such people could express their gratitude for benefitting from lax enforcement by contributing to the campaigns of those in Congress who made it possible.

The renewed effort to step up the collection of taxes is embodied in the Inflation Reduction Act passed last year by Congress with only Democratic votes. Opposition has come exclusively from Republicans.

After the GOP took control of the House this month, it passed a bill along strict party lines, repealing funding over the next ten years for new agents and for upgrading equipment. The GOP view was that the new law would add 87,000 employees who would go after middle class taxpayers. They ignored the exemption for most households or decided to see “middle class” income at new, high levels.

Some expressed the view that the rich always find ways to avoid taxes, so the IRS would end up targeting middle income families and small businesses. In short, there was no point in going after the rich, because the IRS was doomed to fail, and it would end up only getting middle income people to pay what they owe. That might seem unfair. Apparently, tax evasion for all would be preferable.

Treasury Secretary Janet Yellen, overseer of the IRS, stated that households with incomes below $400,000 would not be audited by the new personnel. Her promise was greeted with partisan disbelief. Opposition to improved IRS audits on the wealthy depends on convincing average people that they are really the targets of tougher enforcement rather than its beneficiaries.

At the policy level, the GOP opposition to improved tax collection from the rich is consistent with Republican policies aimed at cutting government spending by starving it for revenue and reducing taxes on the wealthiest households. Among programs targeted for cost cutting are Social Security and Medicare.

The Senate, under narrow Democratic control, and President Joe Biden will not go along with the House GOP. But Republicans seem to believe that their anti-IRS vote will create a winning issue in 2024. While IRS improvement is expected to take 10 years, the Democrats face the challenge of producing some positive results quickly.

House swing district members could control dollar’s fate

 

Gordon L. Weil

Five people hold in their hands the fate of the dollar as the world’s standard currency.  If they can do that, they could go a long way to boosting China in its competition with the U.S.

They may also force the federal government into a partial shutdown.  It won’t be able to keep its commitments or pay its bills.  That would lend support to China’s claim that its authoritarian style of government works better than  American democracy.

The situation arises because Congress faces a war over raising the limit on the federal debt. It’s crunch time, according to Treasury Secretary Janet Yellen.  Without the increase in the debt ceiling, the dollar, the economy and the U.S. standing in the world can soon suffer badly.

The five people who could settle the issue are Republican members of the House of Representatives, now controlled by the GOP by nine votes.  If any five Republicans break ranks, the ceiling could be raised.  Because the votes of both the House and Democratic Senate are required to lift the ceiling, the GOP House majority becomes critical. 

How did the Republicans gain their narrow majority, replacing a similar scant Democratic lead?  It was the payoff for efforts in state legislatures in redrawing congressional districts designed to produce more GOP winners.  This political gerrymandering, sometimes a way of preventing the election of African Americans, is left largely untouched by the federal courts.

In New York, however, it was a court with Democratic nominees who rejected the Democratic effort at gerrymandering, handing the design to the Republicans.  The Democrats lost four seats, three to the GOP possibly due to redistricting and one after the census cost the state a seat.

One of these seats went to George Santos, now the most celebrated liar in the House. His bio, ignored by both parties, made him a dream candidate in a somewhat newly designed district.  Only after he won could voters learn that his bio was pure fiction.  Santos is now so precious to the slim Republican majority that they ignore his creative writing.

With votes of both Democrats and Republicans, Congress voted major spending bills for Covid help and infrastructure, both consistent with policies of former GOP President Donald Trump and Democratic President Joe Biden.  An enthusiastic Congress gave Biden, supposedly a big spender, more money for defense spending than he had requested.

Now, the House Republicans want to pare back some federal spending, hoping that the debt limit would not have to be increased.  It’s really a backdoor way to repeal what has already been approved and partially spent.

On a broader level, the issue reflects the policy differences between the two parties.  The Republicans believe that the federal government has grown too large and the most effective way to reduce its size and scope is to reduce overall spending.  That might be easier than going after specific budget items.

One GOP House member has shown concern about the strategy.  Texas Rep. Tony Gonzalez was the only Republican to vote against the new House Rules that could lead to a refusal to raise the debt ceiling. He worried that reducing spending could mean cuts to the military budget.

The Democrats support expanded government programs that they see as meeting public needs. As people come to rely on agriculture payments or defense-related jobs or bridge repair, they do not want spending cuts.  Overall federal outlays grow.  With no political appetite for tax increases, borrowing must increase.

This domestic political war, conducted with an eye on the 2024 elections, could have consequences going far beyond the budget.   American economic power and world leadership depend heavily on the reliability of the dollar.  That in turn is based on the certainty that the country always pays its bills, including making debt payments.

The Republicans may simply want to force Biden to agree to limited cuts, before they accept any debt ceiling increase.  But reductions in already approved spending could harm GOP constituents.  Maybe that’s what the Democrats are counting on plus the GOP’s need to avoid political responsibility for a shutdown.

A few Republicans might accept symbolic cuts and approve the increase.  That could help several of them, including the three new faces in New York, who won narrow races in districts that could flip back to the Democrats.

Or Biden could try to ignore the issue.  The Constitution says: “The validity of the public debt, authorized by law, ... shall not be questioned.”   Spending has been formally approved without funding from taxes, so Congress understood it must come from debt.  The federal debt is now $31.4 trillion. Doesn’t refusing to raise the debt limit question already authorized debt?

Failure to raise the debt limit could cause major damage or just be part of a political game.  Or both.

House of Representatives in chaos, but not collapse

 

Gordon L. Weil

Ever heard of Henny-Penny?   She’s back!

The children’s tale character was hit on the head by an acorn, concluded “the sky is falling” and set out to warn the king.  Along the way she panicked her friends, who followed her, only to be tricked and killed by Foxy-Woxy.  Just in time, Henny-Penny heard Coxy-Loxy crow, stopped to lay her morning egg and promptly forgot the sky issue.

After House Speaker Kevin McCarthy made concessions to his hard-right GOP members last week, you might have thought the sky was falling.  “To save himself, McCarthy just destroyed the House,” a Washington Post columnist cried. 

I’ll play Coxy-Loxy.  The sky is not falling.  The House was not destroyed.

To be sure, McCarthy met demands of the right-wing so they would step aside and let him squeak into the speakership.  By conceding, he made at least three things happen.

First, he agreed to help them win some legislative battles.  The most significant is giving in to their demand to block an increase in the debt limit by paring down existing spending.  After Congress authorizes spending and appropriates the funds, the Treasury must be allowed to borrow what’s needed, along with taxes, to cover the appropriations.

McCarthy is allowing other jabs at Democratic policies, like their efforts at reviving the IRS, though their votes will end up as posturing not policy.  And he has added an investigating committee to harass and embarrass the Biden administration.

The Republican House will face a Democratic president and Senate that would hardly go along.  An impasse on the debt limit could lead to a shutdown of the federal government or at least severe cutbacks.  It is impossible now to know the outcome, and it’s not helpful to assume the worst on the strength of McCarthy’s deal.  It may have been an acorn.

Second, McCarthy agreed to some procedural changes that weaken the Speaker’s power.  The House Rules, giving the Speaker full operational control of the House, produce what is called “regular order.”  Changing “regular order” matters, but it’s not the end of the House.

Under the new system, a single member will be able to propose a motion to remove the Speaker.  In debates on spending bills, members will be able freely to offer amendments.  Appropriations for individual departments will be handled independently, not rolled into a single “omnibus” package.  All of these procedures have existed at some time in the recent past.

The problem with democracy is that it is intentionally inefficient. Giving all the power to the Speaker fixes that, but at the cost of the independent power of each representative.

Omnibus bills result from adding enough pet projects of representatives and senators to a spending package until majority support is obtained.  That’s called “logrolling” and the logs roll over those left out of the deal.  The right-wingers believe that smaller bills give them a bigger chance.

Pundits worry that the right will abuse the process and either block any action or force others to accept their extreme positions on pending bills.  While they may be able to prevent bills from being enacted, they cannot control Congress.  Stalemate might encourage President Biden to take as much unilateral action as he can, just what they don’t want.

The third change is historic.  In 1994, GOP Rep. Newt Gingrich, who would become Speaker, led House Republicans to adopt strict party discipline.  He promised that if they pledged total party loyalty, their power would grow.  It worked.  It was the same kind of party control as exists in the British Parliament but is not usual in the American Congress.  

The GOP right-wing grew increasingly restive in bending to the will of the party leadership and with the McCarthy election balloting, strict party discipline ended.  While the anointed leader was elected Speaker, he gave away enough control to ensure that no single person could control the House GOP.

The concern raised by these changes is that the GOP extreme right wing, only a minority of all Republicans, will be able to set the House agenda by threatening the Speaker.  Even worse, they could wreak havoc, causing what would amount to a new version of the January 6 insurrection.

If the Speaker’s election turned procedures back to an earlier time with greater power for individual members making chaos possible, the solution might be readily available to most other House Republicans.  They could shake off their dependence on Donald Trump and oppose the right wing’s ambitions.

They need not drop the party’s traditional conservatism, but take on the challenge of defining it for themselves.  Instead of making concessions to Trump for fear of facing primary challengers he favors, they have the chance to exercise leadership to renew their party.  We’ll see.

The American parliament just died.  Up next: the 2024 elections. 

Justices charge Supreme Court acts as legislature; uses 'shadow docket'

 

Gordon L. Weil

The Supreme Court is acting as a legislature – again. 

Two justices on the Court, a conservative and a liberal, just made that charge in a major case.

Here’s the story of how two presidents set policy and the Supreme Court overruled them.

When he was president, Donald Trump sought to protect the American public from excessive exposure to the Covid-19 pandemic that was sweeping the world.  His administration adopted a policy under Title 42 of the federal laws that would ban almost all immigration into the U.S., keeping out people carrying the virus.

This policy, based on the obvious need to protect public health from contagious disease, aligned with his well-known desire to prevent unauthorized immigrants from entering the country.   It had the desired effect and was favored by the governors of states supporting Trump’s effort to bar the illegal immigrants.

When he took office, President Joe Biden retained Trump’s policy because of continuing concern about Covid-19.  Ultimately, he concluded that, while the virus still existed, it was no longer the same threat to public health.  He ordered the end of the Title 42 immigration ban.

Governors of states receiving illegal immigrants opposed his administration’s move, fearing a massive immigrant influx.  Many refugees and asylum seekers were assembled at the Mexican border awaiting Biden’s action.  The states went to federal court to halt his move.

A district court faced the immediate decision about whether the governors of the complaining states had the right, called “standing,” to bring the case.  The Supreme Court has determined parties to a case must be directly affected.  Would the states be harmed by an action under a law dealing with public health rather than immigration?

Before the case could proceed further, the Supreme Court was asked to decide if the states could raise the issue.  The ban was due to be lifted on December 21, 2022, but just two days before, the Court halted it while it decided that question alone, though not the full case.

The Court ruled it would hear testimony in February but could make its decision as late as June. If it rules in favor of the states, a lower court would then decide on the merits of the case itself.   If it decides against the states, Biden can proceed.  All that could take months.  Meanwhile, the ban, probably no longer needed for health reasons, would remain in place.

In short, the Court overruled the president’s legal determination of the health situation.  And the effect of its decision could set national immigration policy for many months, if not years.

Justice Neil Gorsuch, a Trump appointee to the Court, objected, believing the matter was a policy dispute.   Joined by Justice Katanji Brown Jackson, Biden’s only appointee, he acknowledged concerns about immigration.

“But the current border crisis is not a COVID crisis. And courts should not be in the business of perpetuating administrative edicts designed for one emergency only because elected officials have failed to address a different emergency,” he wrote.  “We are a court of law, not policymakers of last resort.”

The Court had other options.  It could have quickly decided on standing.  Or it could have allowed the president’s decision to be applied, while moving to a prompt ruling. 

Gorsuch and Jackson believed the majority was influenced by immigration policy concerns.  But they could not know why the majority had made such an important decision, because five justices had said nothing.  Instead they simply ordered that Biden could not end the ban.

Two other justices – Elena Kagan and Sonya Sotomajor – also opposed the majority.  They gave no reasons, possibly because they had already expressed themselves strongly about the kind of ruling used by the majority.  It’s called the “shadow docket” – rulings made to look simply procedural, but which really decide major cases.

In an earlier case, Justice Kagan had written that the Court “barely bothers to explain its conclusion.” She continued, “The majority’s decision is emblematic of too much of this Court’s shadow-docket decision-making – which every day becomes more unreasoned, inconsistent, and impossible to defend.” 

In that case, Justice Sotomayor simply said, “The Court’s order is stunning.”  The Court did not suspend a state law, while it considered whether the law was constitutional, but allowed it to go into effect.   The immigration case used the reverse approach, though neither time did the Court provide legal justification.

Chief Justice John Roberts speaks of preserving respect for the Supreme Court and asserts that it does not play politics.  Yet he was in the majority in both cases, going along with “shadow” opinions in pending cases that allowed an anti-abortion law passed in a Republican state, but blocked the decision of a Democratic president.

“Equal Justice Under Law” is carved on the Supreme Court building.  Is this justice “equal?”  Where’s the “law?”