How to pay down the deficit

America could almost balance the budget if we collected the taxes that billionaires and big business cheat us out of.

Currently, the deficit for the 2023 fiscal year (October 2022 to today) is $924,522,922,800 (figure courtesy of the U. S. Treasury). Just by numerical coincidence the head of the IRS said that in 2022 the nation lost a shade over that amount in unpaid taxes from the big earners. That’s a trillion bucks that the IRS hasn’t collected because it hasn’t had the people to catch the tax cheats and enforce the law. The “law” in this case being the tax laws that Congress passed but didn’t give the IRS the money to enforce.

Then, when the IRS was given $80 billion to build up the agency after years of decline, Republicans in Congress talked about an army of IRS hit men going after the little guys. In reality the money will help the IRS to hire people to answer the phones so citizens don’t wait for a seeming eternity to ask a question. That, and to hire people with the expertise and ability to go after big-time tax cheats.

High-end tax auditors are expensive, but according to the Government Accounting Office they bring in from five to nine dollars in taxes for every dollar they get paid in salary.

Here’s one example from 2005. The giant consulting firm of KPMG was writing tax dodge schemes and selling them—yes, selling—to “Individuals of High Net Worth.”

Here’s how it worked: KPMG had an auditing branch and a consulting branch and communication between them was prohibited by law. The auditing guys did what auditors do, examine the finances of an individual or company and make confidential recommendations on their fiscal soundness. All very confidential. Except that then the consulting guys would debrief the audit guys on what they found out and, uninvited by the customer (in some cases called “the pigeon”), pony up a tax avoidance scheme for the customer and, without the customer knowing that their privacy had been violated, would say, in essence, “Hey, we’ve been thinking about your finances and we think we can save you $40 million in taxes and we will only charge you $10 million in fees so you’ll come out $30 million to the good. How about it?” And just to sweeten the argument they would offer a “Letter of Opinion” from a prestigious law firm that said in essence “we believe that there is at least a 30% chance that the IRS will fall for this scheme,” but not quite so bluntly.

And the IRS had no clue what was going on and never would except that KPMG made the mistake of asking a straight-arrow employee to do this kind of work. Being the son of a cop, Mike Hammersley said no and went to Congress’ Homeland Security’s Permanent Sub-committee on Investigations and turned KPMG in for the crooks that they were. This resulted in KPMG copping a plea and paying a deferred prosecution fine of $556 million ($883 million today) and much embarrassment for their partners in crime, which were major banks, insurance companies and lawyers. It also ended with Mike losing out on becoming a KPMG Partner and making big money, but he figured it was a cheap price to pay for being able to look in the mirror every day.

That is the kind of game tax cheats play and to catch them you need either an upstanding citizen who, in this case, asked himself how he could look his 1-year-old kid in the eye if he became the company’s crook or a battalion of skilled government investigators working for the IRS. When individuals or firms with lots of money consider whether to engage in questionable practices, they do a cost-benefit analysis which boils down to “how much will we have to pay if we get caught?” That’s the cost end of things, the benefit end is “how much will we make if we don’t get caught?”

The question politicians need to ask is “How much money will we secure for the honest American taxpayer when we catch the unpatriotic tax cheats?”

Jim Elliott served 16 years in the Montana Legislature as a state representative and state senator. He lives on his ranch in Trout Creek.