Author: saltspeak

Compare and Contrast

Minnesota is in the throes¹ of the administration’s crack down on illegal immigration.² It has resulted in the federal government shooting and killing two Americans under (the most favorable characterization) questionable circumstances.

This effort is being financed, in part, by OBBBA’s massive increase in DHS’s funding. That caused my tax-centric mindset to compare the signature discretionary spending increases for federal agencies under the Biden and Trump administrations:

Biden’s Inflation Reduction Act’s (IRA) IRS funding for tax compliance (most of which has now been undone)
Trump’s One Big Beautiful Bill Act’s (OBBBA) increase in the DHS funding for immigration enforcement.

I’ll compare the two efforts using a few different measures. I think they are revealing of the differences and some similarities in the character, ideology, and tactics of the two parties.

Dollars committed

The table compares the respective spending increases for the two agencies. To adjust for inflation, I converted the IRS funding baseline and the IRA authorization to 2025 dollars. (OBBBA was enacted in 2025, so I used its nominal amounts.) The baseline amounts are from IRS and DHS budget documents (for FY2022 and FY2025 respectively). I used their total resources, which include fees that agencies can spend in addition to their appropriations.

For DHS, I limited the baseline to that for Immigration and Customs Enforcement (ICE) and Customs and Border Enforcement (CBP), which filters out unrelated DHS spending, such as that for FEMA and TSA. Similarly, I excluded the IRS increases for taxpayer service (about $3 billion) and the amount for DHS increases to reimburse state and local governments for their costs (about $26 billion). Doing that was a crude effort to focus on the increase in agency enforcement-related spending.³ I used TIGTA numbers for the IRS and CFRB numbers for the DHS increase. Because the increases were to be spent over different periods (10 years for the IRS and 4 years for DHS), I converted the increases to annual amounts to give a roughly comparable magnitude measure. All amounts are in billions of 2025 dollars.

IRA’s and OBBBA’s Signature spending initiatives

	IRS	DHS
Baseline spending	$15,291	$33,514
Total $ increase	83,300	150,000
Annual increase $	8,330	37,500
Annual increase %	54.5%	115.9%

It’s clear that immigration enforcement received a much larger increase, both in absolute and percentage terms – more than twice as large.

The table amounts are a crude measure of enforcement efforts for both agencies. They include IRS spending on operations support, system modernization and so forth and DHS spending for the border wall, neither of which most would think of as enforcement.⁴ Getting beyond that requires a more granular knowledge of the agency spending than I have for DHS.

That said, the Congressional Research Service has estimated that the IRA funding (before rescissions) increased IRS enforcement by 69% or about $4.6 billion/year. The CFRB numbers that are more clearly related to ongoing ICE and CBF enforcement are $99 billion or $25 billion/year, which is a more modest 75% increase that is in the ballpark with the IRS enforcement increase per CRS. But if you focus exclusively on the ICE component with its much more modest baseline (a little more than $10 billion) and its much larger share of the increase (border funding was mainly the wall), then the increase balloons to 185%. That is probably is closer to the appropriate comparison – again, more than twice the increase for the IRS.

It is safe to say the immigration crackdown funding is at least twice the amount Congress original authorized for tax compliance in the IRA on an annualized basis. It’s probably much higher. For example, Wikipedia asserts that OBBBA “increases the funding for Immigration and Customs Enforcement (ICE) from $10 billion to more than $100 billion by 2029, making it the single most funded federal law enforcement agency.” I have no idea if that’s right (it’s Wikipedia after all) but that would be close to 20X the annual amount in the IRA (as passed) for tax enforcement.

Net fiscal cost

As a fiscal or budget matter, comparing outlays for the two efforts is like comparing apples and oranges, more specifically means versus ends. Expanded IRS funding was intended to raise revenues – that is, as a means to pay for other government spending (the ends). OBBBA’s expanded immigration enforcement is spending on an end (immigration enforcement) and the economic consensus is that mass deportation would be a drag on economic growth and thus on revenues from the income and corporate taxes. See e.g., this Peterson Institute working paper (pp. 8ff and Figure 1).

So, a more accurate fiscal comparison should take those differences in kind into account. I’ll ignore the negative growth effects of mass deportation because I’m not aware of a neutral source that estimated the potential budget effects without relying on (likely shaky) assumptions about how many people could and will be deported.

IRA’s funding of the IRS was estimated by CBO as raising $180 billion in additional revenue. Thus, after deducting the $80 billion in outlays the net effect would have reduced the budget deficit by $100 billion over ten years.
OBBBA’s immigration funding (ignoring the negative growth effects), by contrast, increased outlays and the budget deficit by $176 billion. But it’s worse because its spending was compressed into four years. If Congress chose to make it permanent, CFRB estimated that the 10-year cost would rise to $293 billion.

Thus, a more accurate comparison is almost a $400 billion difference in the deficit effects over the traditional 10-year period – going from reducing the deficit by $100 billion to increasing it by just less than $300 billion. And that ignores whatever negative growth effects occur from deporting hundreds of thousands of workers. Of course, there’s a reasonable chance (let’s hope) the immigration funding will be cutback at some point.

Sustainability

Both efforts clearly were long-term in nature. You can’t deport 11 to 14 million people in a year or two.⁵ Similarly, building tax enforcement and auditing systems is a complicated and long-term project. It requires developing both IT and human capital systems in the tax administration agency. Both bills, thus, provided multi-year funding. Of course, unspent funds can be rescinded by future Congresses.

That is exactly what happened to the IRS funding. It provided 10 years of funding but in less than two years Congress began to rescind it. Full rescission of the enforcement funding has effectively occurred with resolution of the latest shutdown, less than four years after enactment. This chart from the Bipartisan Policy Center captures what has happened. Of the $45.6 billion for enforcement only $0.1 billion remains. The IRA money that remains for the IRS is mainly in operations support and business systems modernization, not enforcement.

The jury is out on the DHS funding increase. The GOP used a strategy that is less vulnerable to rescission. It provided funding compressed into four years, which means rescissions will need the agreement of the Trump administration. Overriding a veto even if the Dems retake control of Congress would be all but impossible.⁶ The resulting risk is that renewal or extension will come up sooner and is vulnerable to the Dems taking control of one or more of the three crucial budgeting entities and insisting on cutbacks. But frontloading the money certainly seems likely to ensure more is spent, even if ineffectively.

Policy execution

The cliché regarding recipes and cooking – the proof is in the eating – applies to public policies and programs as well. Policy design, enactment, and funding are critical, obviously. But implementation matters as much or more. A well designed and fully funded program is worthless if it is not appropriately implemented. In this regard, there are more differences than similarities between the two initiatives.

Expanded tax compliance was undertaken as the long-term bureaucratic initiative it was – methodical planning, starting to hire and train staff, acquisition and building of IT infrastructure, etc. The IRA passed in August 2022 and as described by CRS:

Shortly after the IRA’s enactment, the Department of the Treasury promised to deliver to Congress by mid-February 2023 a report detailing how the IRS intended to use the IRA funding. The report, delivered April 6, 2023, sets forth five key objectives for using the funds and a variety of initiatives and projects for accomplishing them.

The short (2 page) CRS report describes the objectives and how the Service intended to achieve them. One can disagree with the plan (warning 150 pp long) or some of its elements, recognize that its objectives are general, strategies ambiguous, and implementation crucial, but explicit and detailed plans were made and communicated to Congress and the public. Ongoing evaluation and reports were made on implementation by the Service and TIGTA (example). Of course, the baby was killed in the cradle. So, we’ll never know whether the plans would have been implemented or worked. But it was not for lack of effort in what was at least a reasonable plan to use the money. The money that was spent (a lot) went for anodyne taxpayer service and to improve systems, (i.e., generally unobjectionable unless you want the tax collection agency to fail and undermine government credibility as a general matter; I probably should not discount that possibility in the current environment).

Implementation or policy execution of the aggressive immigration enforcement funding bonanza could not differ more. We’re less than nine months out from OBBBA’s passage but are headlong into high profile implementation. If planning was done, it must have been started before OBBBA’s enactment (possible – recall Project 2025) and it has not been communicated to the public or Congress (unless privately only to GOP members). Hiring and training processes have been truncated and standard methods abandoned for meeting daily detention or deportation quotas (note that this occurred before OBBBA’s passage).⁷ Enforcement has been so aggressive and rapid-fire that DOJ has admitted in a court filing that it violated 50 court orders in immigration related matters (admittedly, some of these violations were one day delays in complying, but still).

The administration is reportedly paying more than $100,000 per deportee to third countries to accept individuals whose countries of origin won’t readily take them. This makes one wonder if anyone is even thinking about, much less calculating, the marginal benefit of their actions compared to alternative approaches to deal with these individuals.

The immigration enforcement effort comes across as a secret police action whose planning was DOGE-like (cut without measuring because you’re sure you know the size needed, if you’re not right, you’ll force it to fit).⁸ The only way it makes logical sense is that they decided to deter migration by making the US such a miserable place that migrants will not want to come here and those already here will voluntarily leave. What they forgot is that also makes the US an undesirable place for many citizens, as well as desirable migrants. In 2023, 25% of US physicians were foreign born as an example. Where would we be without a quarter of our medical doctors?⁹

Rhetoric/political messaging

Both bills were the result of partisan political enterprises, passing under the reconciliation rules to avoid the filibuster on straight party-line votes. But that’s not the full story. It’s useful to do a little subjective, qualitative evaluation of how partisan and extreme they were, including the rhetoric used to support and oppose them. Once again, there are similarities and differences.

Degree of partisanship

In evaluating how extreme the two measures are, two different metrics seemed instructive to me:

How closely did the measure relate to each party’s core agenda?
How much did each of the parties need to compromise among themselves to formulate viable proposals within the party?

In relating the two measures to the parties’ core partisan agendas, the striking difference relates to means versus ends. IRS funding was a means to fund the Dems’ policy agenda, while increased immigration enforcement was the actual GOP end policy.

IRS funding is obviously not an end in itself. Rather, it was a means to Dems’ ends of funding government programs.¹⁰ Depending on how the revenue was used, one could even view it as bipartisan (e.g., for deficit reduction, an oft-expressed GOP goal). More realistically, it funded the partisan priorities in IRA such as expanded ACA coverage, refundable child credits and so forth reducing the amount of debt financing. In that view, it’s an analogue of OBBBA’s SNAP and Medicaid cuts.

By contrast, OBBBA’s increased ICE funding directly addresses a major partisan campaign issue of the GOP: more aggressive border and immigration enforcement and policies generally. Since the 2016 campaign (“Build the Wall” was a consistent mantra and by many accounts a reason why Trump won the primaries and nomination¹¹), border enforcement and general opposition to immigration of all types have been prime agenda issues that the GOP used to differentiate itself from the Dems.

In assessing the amount of compromise needed to assemble a measure that could pass, the differences are more striking. IRS funding was the most bipartisan of revenue raising options available to the Dems, while the GOP passed close to, if not, their actual immigration policy.

In coming up with revenues to fund their policies, Dems are arrayed as follows: (1) the hard left (Bernie Sanders, Elizabeth Warren, et al as the metric) would impose extremely progressive taxes such as a wealth tax, expanded corporate taxes and higher top individual income tax rates, (2) the middle of the party (Biden budget metric) would have expanded the income tax (grab bag of stuff that hit those with incomes >$400k such as carried interest, taxing capital gains at death, etc.) and clawing back some of TCJA’s corporate rate cut, and (3) the most conservative part of the party (whatever Manchin and Sinema would accept as the metric). After struggling mightily to agree on anything, they finally settled on (3) the most conservative approach – compliance funding for the IRS, a corporate minimum tax, and some other items. One could plausibly argue that in a divided government, the GOP might have agreed to much of this in a budget deficit reduction standoff as in the pre-Trump days. That was certainly true in 2013 when they agreed to allow some of the Bush tax cuts to expire as revenue raisers.

By contrast, as far as I can tell, OBBBA passed virtually what Trump campaigned on and wanted with regard to immigration enforcement. A more modest version would have been an expanded and modified version of the proposal that Senator Lankford negotiated with senate Dems (and Biden agreed to) in 2024. That agreement provided lower funding (less than $120 billion) and allocated the money to somewhat different priorities (e.g., funding more judges to handle cases). OBBBA allocated half again as much money and allocated almost all of it for enforcement and the wall with very little for judges to handle the resulting cases.¹²

In sum, by the very nature of the two measures and the way in which they were assembled, ICE funding was obviously much more partisan and extreme than the IRS funding.

Rhetoric

By contrast, the political slogans, tactics, and rhetoric used to oppose the two spending packages are eerily similar.

Abolish ICE/IRS – The Dems’ “Abolish ICE” messaging has been ubiquitous (after some handwringing about whether it would boomerang the way Defund the Police did) but the GOP’s version is easily forgotten, if more laughable. (ICE, at least, is a relatively new incarnation in the wake of 9/11. See the section below on Context and Background. The idea of killing the federal government’s main tax collection agency is ludicrous.) But eliminating the IRS is a feature of the FAIR Tax, a longstanding GOP proposal. The most recently confirmed IRS commissioner once was an author. It provided for replacing the individual and corporate income taxes, payroll, and estate and gift taxes with a sales tax to be collected by the states on behalf of the federal government. Essentially returning the country to a feature of the Articles of Confederation, where the national government relies on the states for its revenue. (Check with Alexander Hamilton; that was the prime rationale for the constitution.)
Jack booted thugs – Each side has characterized the spending as funding quasi-police state tactics. It’s been a few years, so it’s again easy to forget Senator Grassley’s, then Senate Finance chair, and Senator Cruz’s rhetoric on this that was echoed by other high-level Republicans. The difference, of course, is that the immigration funding has resulted in government killings, multitudes of false arrests, confinement in awful conditions for often no or only civil law violations, etc. The threat of auditing lemonade stands (the head of the Republican Party said that) pales by comparison, even if were reality. Making false charges may be more revealing of what you would do if you had power is all I can think.
Government shutdown threats – The ICE funding has resulted in a partial government shutdown (no DHS funding), as the Dems are on legal restrictions on ICE and CBP’s tactics before authorizing funding.¹³ Again, it’s easy to forget Senator Cruz, ever the fount of over-the-top, idiotic rhetoric, also advocated shutting down the government back in 2023 over the IRS funding.

Final thoughts

In sum, by the very nature of the two measures and the way in which they were assembled and implemented have parallels, but the ICE funding was hands-down more partisan and extreme than the IRS funding. And its actual effects were much worse than the GOP’s over-the-top rhetorical charges about the IRS funding.

I think this reflects basic differences in the character and composition of the two parties. The Dems are heterogenous bunch – reflecting widely divergent demographic groups and varying policy views, ranging from uber-lefty to centrist. The party’s tent now covers a cohort of refugees from the GOP’s extinct moderate wing. That constituency, by its nature, compels the Dems to be more moderate and normie.

By contrast, the GOP has become increasing homogeneous both demographically and in its policy views. The southern strategy, adopted in the 1960s and culminating with the 2016 nomination of Trump that de facto rejected the 2013 autopsy’s recommendations, made it more or less a party of and for whites.¹⁴ Trump’s death grip on the party and its policy agenda has also made the party unfriendly to anyone who does not hew to his MAGA populist agenda with all of its vagaries and idiosyncrasies. That has resulted in a critical mass of its base (nationally and in many localities) of xenophobes and conspiracy theory friendly types who can drive the primary result, which puts the fear of God in elected officials and potential candidates. That weird mix is the only way I can explain/understand their immigration agenda and its horrific practices in service of what seems to me, at best, idiotic economic policies.¹⁵

Contextual background info

The following provides some background information that seemed relevant to me and informed my thoughts expressed above.

History of IRS abuse. There is a long history of using the IRS as a partisan weapon – sometimes successfully (FDR going after Andrew Mellon and Huey Long) and others largely thwarted by principled opposition (e.g., IRS Commissioner Walters refusing to go along with Nixon). The most recent example was Lois Lerner and the scandal involving slow walking of the approval of tax-exempt status for Tea Party related groups (and others), which IMO was wildly overblown by GOP partisans but was still bad. There is a Wikipedia page on it.

That background makes the GOP’s over-the-top rhetoric about rebuilding IRS auditing more understandable, although still misplaced IMO.

Border patrol and ICE. As a tax guy, I was aware of the abuse of IRS powers across the years but not of the longstanding issues with the Border Patrol. See this NYTimes column by Reece Jones, the author of a book about the Border Patrol, for examples going back to its formation in the 1920s:

How the Border Patrol operates can be traced back to the agency’s origins in Wild West frontier policing. The United States Border Patrol was established in May 1924, days after the signing of the Johnson-Reed Immigration Act, which set very small quotas for immigrants from most of the world except Northern Europe. According to the Times headline at the time, the law was meant “to preserve racial type as it exists here today.”

Senator David Reed, a Pennsylvania Republican who sponsored the immigration act, explained in a 1925 Senate debate: “They [the border patrol] have no right to go into an interior city and pick up aliens in the street and arrest them, but it is just at the border where they are patrolling that we want them to have this authority.” He reassured his concerned colleagues, “We are all on the alert against granting too much power to these officials to act without warrant.”

His promises proved empty. The first agents were hired from frontier law enforcement and brought with them a frontier ethos. One agent bragged in his memoir that he had killed 27 people, but that was just whites; he didn’t bother to count Black and brown people. Another agent, angered when a smuggler shot his partner, went to the Rio Grande and indiscriminately shot at every Mexican he could see on the other side of the river.

ICE is a newer agency, created in response to 9/11. It too has had multiple issues in that shorter history. This Substack post by Garrett Graf is long but worth reading to get a flavor of issues and problems with both agencies:

ICE is an agency whose recruiting and training standards are so low that other federal law enforcement agents say pejoratively that ICE is “hired by the pound, from the pound.” And the paramilitary CBP, especially, has been uniquely callous with human life and suffers from a deeply ingrained culture of racism and misogyny, all of which is enabled by an all-but unequaled longstanding sense of impunity.

It’s no surprise, I guess, that tasking these agencies with an unprecedented with a mass deportation is generating the friction it has. (Operation Wetback during the Eisenhower Administration deported a small fraction of what Trump promised in a much different social context.) The Dems’ rhetoric and opposition are totally understandable to me.¹⁶

Fraud-fighting. This, of course, was one of the administration’s rationales for the Minnesota surge. It is a mere pretext. Minnesota does have a serious fraud problem in its social service programs and the fraud that has been uncovered is strongly linked to one of the state’s immigrant communities. But the surge is pretextual because:

The fraud that has been uncovered is nearly all linked to citizens or legal residents.
Neither ICE nor CBP have the mission or expertise to investigate white collar fraud. If fraud were the real concern, the feds would have sent white collar crime experts and investigators, auditors, and data scientists, not the equivalent of poorly trained bounty hunters.
Yes, Minnesota’s uncovered fraud is large – $250 million in Feeding Our Future alone and tens of millions in other cases. (Joe Thompson’s cited $9 billion IMO was purely speculative and is not based on actual evidence. It seemed to me an irresponsible assertion for a prosecutor to make. The report by Optum (coverage here and here), albeit commissioned by the state, seems more measured and realistic, and suggests a fraction of the amount might be fraudulent.) The evidence certainly could support well targeted federal enforcement efforts. But other states – notably Arizona’s $2.5 billion documented Medicaid fraud – have been larger and have not garnered the same attention from the feds, the GOP, or right-wing media. It’s easy to guess why. There isn’t convincing evidence that Minnesota’s Medicaid fraud is out of range with other states. There simply are reliable benchmarks that I’m aware of.

Notes

As I was writing this post, the administration announced an end to it. Skeptics, including me, are withholding judgment on the extent to which that will happen. ↩︎
It’s also a crackdown on legal immigration with the arrest/detention of people with TPS status, entrants with pending asylum claims, and already vetted refugees who have been confined to re-review their vetting. That says nothing of the many citizens who have been swept up because of their appearance, accents, or protest-related activity. ↩︎
Some of the increased DHS spending was explicitly denominated to reimburse state and local governments for their costs, which I excluded. Much of the respective increases for both agencies was for infrastructure-ish spending – e.g., building the border wall and IRS system modernization. Also, I would note there is an asymmetry in the comparison because I did not adjust the IRS baseline to exclude non-enforcement spending such a pure taxpayer service; ICE and CBP amounts, by contrast, are more or less exclusively enforcement. ↩︎
The border wall spending – over $45 billion – is IMO some combination of inefficiency and waste. There are simply more effective and less expensive ways to prevent border crossings. Consider also that the administration claims (with reasonable credibility) to have essentially stopped most illegal border crossings from Mexico without building the wall. Much of that, of course, may simply be due to making the US a much less attractive place for migrants in various ways, including the brutality that may be visited on you if you’re successful in crossing the border. ↩︎
The last 2+ months in Minnesota alone reveal its impracticality, as well as its society-destroying effects. ↩︎
The Biden administration did agree to the first tranche of rescissions in the IRS funding, so Trump and GOP members of Congress plausibly could agree to cutbacks. That seems unlikely given their MO. ↩︎
This topic is well outside of my expertise. I based my conclusions on reading the general news media stories over the last months and Garrett Graf’s Substack post referenced in the last section of this post on Contextual background info under the heading, Border Patrol and ICE. ↩︎
Along these lines, DHS has adopted what Politico describes as “a ‘mandatory detention’ push — an unprecedented reinterpretation of decades-old laws — has resulted in thousands of people, most without criminal records, being detained, even if they have lived in the country for decades without incident.” This, as one would expect, has led to a plethora of litigation and as Politico reports: “[D]istrict court judges appointed by every president since Ronald Reagan have overwhelmingly agreed, rejecting the new policy, while a small but growing minority — primarily of Trump-appointed judges — has endorsed the administration’s view. The 5th Circuit Court of Appeals has embraced that outlier view as well. But the issue is far from settled and could be on track for the Supreme Court.” The Politico article has a table that tracks the cases by the name of the judge and the president that appointed each, with links to the court orders. Here’s a link to David French’s scathing take on the 5th Circuit decision, the piece that alerted me to this issue. ↩︎
See this NY Times story about a town in Alberta that resorted to paying big signing bonuses to attract seven family doctors from West Africa out of desperation. I guess that still may be possible in the US, but the Trump administration has imposed $100K fee on H1B Visas, one of the typical ways foreign physicians are legally brought to the US. So, a similar US town would need to pay that, in addition, to a signing bonus. It seems the opposition to any kind of migrants, included ones critically needed and who follow the rules, runs deep in this administration. ↩︎
Sure, it could also be viewed as an end in itself, i.e., ensuring that more taxpayers pay their legal obligations, the full tax liability. It’s fairer to classify that as a desirable side effect and nowhere close to a core agenda item. ↩︎
It was contrary to the general policy preferences of the GOP donor class – Club for Growth, Kochs, etc. They were more on board with the Gang of Eight immigration compromise during the Obama administration than the current Trump approach. Earlier efforts during the W administration were torpedoed by the efforts of Senator Jeff Sessions and his aide, Stephen Miller, who now is a key domestic policy advisor to Trump. Miller, by some accounts, was behind the Trump’s use of Build the Wall as a key 2016 campaign issue and contributor to his primary success. See these NYTimes and Atlantic pieces for background information on Miller and his role in Trump’s immigration policy. ↩︎
This, of course, is a factor in the immigration case backlog. The DOGE-like firing of immigration judges, reported to be 100, is almost certainly another contributing factor. OBBBA increased enforcement spending by multiple factors but the number of judges by much less. That only works if the enforcers are also the de facto judges – i.e., the people detained are deported without hearings and adjudications or are detained for very long durations. I don’t know but doubt that DHS has even hired sufficient replacements for the fired judges, much less for an increase in the cohort. By contrast, hiring enforcement agents is a full go. ↩︎
Count me skeptical of the negotiating power resulting from holding TSA and FEMA employees hostage, while ICE and CBP go merrily on their ways. Seems like a pure reflexive “do something/anything” reaction, much as I agree with the need for and sensibility of many of the restrictions. ↩︎
They made inroads in the 2024 election with conservative Hispanics and Black males but kicked it away with their governing policies on immigration and economics. That reflects, I think, the current iteration of the party’s MAGA core philosophy. Building a large electoral majority does not seem to a big goal if it involves being friendly to more diverse constituencies.

For a Rip Van Politico who went to sleep in the 1960s, this description of the party of Lincoln, which provided the necessary Senate votes to overcome the southern Dems’ filibuster and pass the civil and voting rights acts, would be hard to believe. I think it came about gradually by various transformations and moves necessary to capture white southern Democrats and northern blue collar “Reagan Democrats” (e.g., political messaging about welfare queens, Willie Horton, and similar) and to attract most of the conspiracy theorist “crank” element of society (accomplished by a succession of figures spouting faux populism, conspiracy theories, anti-intellectualism, and scapegoating – Gingrich, Buchanan, Tucker, RFK jr., etc.). That is now a critical mass of the party’s base – sufficient, as proven by Trump and others, to win most GOP primaries. It was fully confirmed with Trump’s freak election in 2016 and most importantly by 98% of the party’s elites’ acceptance of his characterization of the events of January 6^th. That has made the party a wholly owned Trump subsidiary and excommunicated any normie, moderate element (most neocons, prudential conservatives, true limited government types and so forth) who were unwilling to always go along with whatever his wacky whims.

This is a party that accepts the likes of Nick Fuentes and Candace Owens, while shunning Mitt Romney and Liz Cheney. It’s a truly remarkable metamorphosis for one of the nation’s two great political parties. At least, that is my analysis of what has happened as someone viewing it from the nonpartisan sidelines. ↩︎
Proponents, including Trump and administration officials, frequently justify mass deportations as creating jobs for citizens and legal residents. (The real justification is likely more sinister with cultural and racial dimensions.) This is a classic Econ 101 justification that has some simplistic appeal but is contrary to reality (see e.g.). Even as a matter of common sense (economic study unnecessary), most citizens are unwilling to accept farm worker, roofer, long term caregiver and similar jobs. ↩︎
IMO if Biden had followed a border and immigration policy closer to Obama’s, the 2024 election results might have come out differently. Biden’s laissez faire border policy for the first 3+ years of his administration made the Trump’s campaign focus on immigration more salient and acceptable to voters outside his xenophobic base. Moreover, it was an anchor dragging down Harris because of her assigned role in the administration (“border czar” to the Right) and the general impossibility of separating herself from the Biden policies. ↩︎

Tags IRS funding, OBBBA

Trump’s IRS lawsuit

President Trump, his sons Don Jr and Eric, and his business sued the IRS for $10 billion in damages to compensate for the illegal disclosure of his tax returns to ProPublica and the New York Times. To put the $10 billion in context, Forbes (9/18/25) estimated Trumps’ net worth as $6.3 billion.¹

Here’s a link to the CourtListener page that provides access to the complaint and other documents filed in the case.²

If he were a typical taxpayer, this would be a legit lawsuit that could result in the government paying damages.³ The law explicitly allows for these suits and provides for liquidated damages of $1,000/incident and reasonable attorney’s fees.⁴ The Trumps suit seeks punitive damages, of course.

For example, Ken Griffin, a hedge fund guy, sued over disclosure of his returns in the leak. The case was settled with an apology. As Tax Notes (no paywall) reports, unlike the Trumps, Griffin “did not allege that the IRS’s failure to appropriately safeguard his return information caused him pecuniary harm.”⁵ The Tax Notes story also notes that the IRS notified about 70,000 individuals that their information was involved.⁶

The following make the Trumps’ lawsuit especially unusual (among many others that make it merely unusual):

All presidents and major party nominees, except Trump, have voluntarily disclosed their tax returns to the public. Tax Notes archive. The one exception (Trump) is now claiming that involuntary disclosure caused him and his family massive reputational damage and entitlement to punitive damages.
The leak of his return information occurred while he was President and while his appointees were in charge of the Treasury Department and the IRS. One might say he was somehow responsible for the leak indirectly, the unitary executive and all that jazz. (I know, it’s just a highfalutin constitutional theory about authority and power, not accountability or legal liability.) And the conduct was so bad that punishment (i.e., punitive damages) should be meted out, the most important effect of which would be to line the pockets of the guy in charge. Translation: I or my appointed underlings made mistakes in supervising this rogue contractor who criminally released confidential tax return information. Please punish that conduct by giving me billions of dollars!⁷
Whatever one thinks of that theory, he and his appointees are now in charge. So, he will directly (unitary executive again) or indirectly be deciding whether to pay himself, his family and business and how much. That is a bit of a conflict, to the say the least. In the context of Trump’s administrative claims for damages related to the federal criminal cases, he allowed that it was “it’s awfully strange to make a decision where I’m paying myself.”⁸

A natural question is whether equitable defenses, like estoppel, laches, unjust enrichment and so on, will be available to the government. Probably not for liability based on a statute with exemplary damages. Of course, that assumes the more important question of whether DOJ will be allowed to contest the case at all and if doing so (e.g., some sort of damage formula in a “settlement”) will somehow be binding on the government for claims by others with clean hands and real harm to their reputations.

Of course, there is a plethora of commentary and pushback. A tiny sampling:

WaPo editorial (note that the new configuration of WaPo editorial board appears to be more of a WSJ editorial board wannabee than the old WaPo editorial board): “Public officials trying to dictate the amount of their own private payouts is a bad look.”
NYTimes editorial
Letter from Senators Wyden and Warren to Secretary Bessent and Attorney General Bondi
Motion to file an amicus brief filed by four former tax officials including John Koskinen and Nina Olson, Common Cause, and Project on Government Oversight – this is the most comprehensive lists of potential issues with the lawsuit that I have seen. It validated my instinct that there must be a statute of limitation issue with the suit. I think all of their overarching four requests for court actions make eminent sense to me.⁹
Jack Goldsmith and Bob Bauer discussed it on the Executive Functions podcast

Notes

When I checked Bloomberg’s list of billionaires (2/8/2026), Trump did not crack the top 500 (cutoff was $7.43 billion). Logically, one could argue that the tax return disclosures adversely affected his net worth (i.e., more than cut it in half or something like that), justifying the damage claim. That, of course, is ridiculous. He was reelected after the disclosure and his reelection vastly increased his net worth, if only based on outright or quasi-grifting. See, e.g., the NYTimes or the CAP accounts of a tally of how that has occurred. ↩︎
Note that the suit is filed in the southern district of Florida. I assume the Trumps were hoping to draw Aileen Cannon one more time. No such luck, the case was assigned to Judge Kathleen Williams, an Obama appointee. ↩︎
I.R.C. § 7431 authorizes suits for damages for violations of I.R.C. § 6103. The damages for “willful inspection or disclosure” are the greater of actual damages or liquidated damages of $1k per incident. Punitive damages, which the Trumps’ lawsuit requests, are allowed but appear to apply only if the grant is based on actual damages. (Punitive damages are the only way you can get to $10 million IMO, much less $10 billion.) The inspection and disclosure were made by a contractor who admitted it was done intentionally. So, the “willful” requirement for punitive damages under the statute is likely met. I don’t know if his contractor status affects the government’s liability. I.R.C. § 7431(a)(2) authorizes suits against an individual who discloses your return information but who is not an officer or employee of the government. That is what occurred here. Other suits have been filed against the contractor, Boaz Allen & Co. Whether the ability to sue contractors protects the government from liability or just adds another liability target is unclear. ↩︎
This is one instance where the statute cuts against Trump, his sons, and business. Entitlement to attorney’s fees is not allowed to individuals whose net worth exceeds $2 million or $7 million for a business. 28 U.S.C. § 2412(d)(1)(B). Notwithstanding that, the complaint (¶ 114) requests attorney’s fees. Getting to the limit in § 2412(d)(1)(B) requires following two cross references that start in § 7431(c)(3). ↩︎
An obvious question is whether the settlement would allow him to refile if DOJ and IRS agree to pay the Trumps a lot of money? ↩︎
The complaint (¶¶ 78 and 80) asserts that this IRS notice was what caused Eric and Don Jr. to discover the violations. Gee, were they on safari or under a rock since the news stories ran in 2023? There must be an issue of the SOL running. I didn’t bother to research the SOL, but the amicus brief referenced at note 8 makes a good case that the 2-year statute has run. ↩︎
The actual perpetrator (Mr. Littlejohn, the Boaz Allen & Co. contractor) is serving a 5-year term in prison. Criminal punishment is the strongest deterrent of conduct by his likes, the direct disclosers of return information. Thus, any deterrent effect of punitive damages (here they would be paid by the government, not Littlejohn or Boaz Allen) must be directed at the people who supervise and manage the direct perpetrators, i.e., higher level officials in the IRS, Treasury, and White House. ↩︎
At least, in that case he was only asking for $230 million. Of course, that claim was made before he won, and we all know elections have consequences. ↩︎
The requests: “First, the Court should consider issuing an order for the parties: to show cause why this Court has jurisdiction over this case, to explain how they will address the fundamental conflict-of-interest problems with this case, to show why this case should not be stayed until after President Trump leaves office, and to show why the unjustified $10 billion damage figure should not be stricken from the pleadings. Second, the Court should consider appointing amici who have expertise on issues of tax law and separation-of-powers issues to present fulsome legal arguments on all future issues that arise in this case. Third, the Court should consider allowing participation of those amici in hearings. To treat this case like business as usual would threaten the integrity of the justice system and the important taxpayer and privacy protections at the heart of this case.” ↩︎

Tags IRS, Trump

income tax tax administration

IRS January News

Trump Sues the IRS

I should have expected this after he filed an administrative claim for damages related to Jack Smith’s prosecutions. But his chutzpah never ceases to amaze me. According to the NYTimes, Trump Sues I.R.S. Over Tax Data Leak, Demanding $10 Billion(1/30/2026):

President Trump sued the Internal Revenue Service on Thursday for the unauthorized leak of his tax returns during his first term, demanding that the government agency pay him at least $10 billion.

Mr. Trump, as well as his two eldest sons and his family business, charged in the lawsuit that the I.R.S. and the Treasury Department had failed to prevent a former I.R.S. contractor, Charles Littlejohn, from gaining access to Mr. Trump’s tax documents, which were shared with The New York Times.

Mr. Littlejohn is serving a five-year prison sentence for taking tax documents about Mr. Trump and other wealthy Americans and giving them to news outlets. While federal law closely guards tax information, Mr. Trump, with the lawsuit filed in federal court in Florida, is now seeking billions in damages for the disclosures.

Mr. Trump appointed the leaders of the I.R.S. and Treasury Department, setting up the possibility of Mr. Trump’s aides deciding how to respond to a lawsuit brought by the president. Mr. Trump has previously demanded that the Justice Department pay him about $230 million in compensation for the federal investigations into him, a request that had no parallel in American history.

Leadership Shakeup

On January 20^th, WaPo reported (link) on yet another reorganization of IRS leadership and that the agency was leaning into relying on IT and is outsourcing some processing functions to the private sector (my emphasis added):

The Internal Revenue Service will reorganize its senior ranks days before this year’s tax filing season opens and try to use technology to become more efficient, the Trump administration’s IRS leader Frank Bisignano told The Washington Post on Tuesday.

…

Bisignano said the tax service was well-positioned ahead of the coming filing season but needed to more aggressively lean into technology, including initiatives pushed by the now-defunct U.S. DOGE Service to reduce staffing.

“We’re constantly investing in technology. We constantly must reap the rewards of it. And quite often we don’t, because someone isn’t willing to let go of those two people,” he said. “ … I’m not at all feeling that we don’t have enough staff. I just think it’s a way people think that is obsolete.”

,,,

Bisignano on Tuesday unveiled a new leadership team at the agency that will see 16 C-suite executives report to him, including a new chief of criminal investigations and the IRS’s acting chief counsel.

The agency will jettison its former standards that measured and tracked performance on taxpayer helplines. Bisignano said previous metrics that tracked access to customer assistance representatives were opaque and distracted from the agency’s mission of helping solve taxpayers’ problems. It will instead gauge average speed of answer at call centers, call abandonment rate and time spent on the line, he said.

The agency will also outsource some of its paper return processing operations, including using private contractors to scan and digitize tax returns. The IRS has long been burdened by paper processing. Hard copy returns make up a fraction of the agency’s correspondence, but they take exponentially longer to process than returns filed electronically.

DOGE officials had pitched fully privatizing those initiatives. Bisignano said the IRS would have a “hybrid” public-private digitalization process, saying he was wary of outsourcing too much of that work.

“I’m fundamentally DOGE,” Bisignano said, “and what I’ve meant by that is I’ve driven efficiency and quality my whole career.”

Last filing season, playing musical leadership chairs did not seem to matter. Let’s hope that holds. Governments heavily relying on technology solutions (hello, ACA) has not typically turned out well.

Privatizing digitizing paper returns seems like yet another opportunity for data breaches. (The ProPublica leak was from a contractor working for Booz Allen. Treasury has cancelled its contracts with Booz Allen in response.) I assume that this means the end of IRS staff keying in numbers off paper returns.

This AP story has some additional interesting details about the leadership changes:

In a letter addressed to the agency’s 74,000 employees and viewed by The Associated Press, Chief Executive Officer Frank Bisignano announced new priorities and a reorganization of IRS executive leadership.

Notably, Gary Shapley, the whistleblower who testified publicly about investigations into Hunter Biden’s taxes and served just two days as IRS Commissioner last year, was named deputy chief of the Criminal Investigation division. Guy Ficco, the head of Criminal Investigation, is set to retire and will be replaced by Jarod Koopman, who will also serve as chief tax compliance officer alongside Bisignano.

Joseph Ziegler, another Hunter Biden whistleblower, was named chief of internal consulting, the letter said.

For those of you who don’t pay as close attention to this stuff as I do, Shapley was kicked to the curb in a dispute between the current acting commissioner, SecTreas Scott Bessent, and then de facto DOGE head, Elon Musk. This is from a 4/18/2025 Politico story:

President Donald Trump is replacing the fourth IRS chief this year amid complaints by Treasury Secretary Scott Bessent that he was not consulted on the appointment after Elon Musk recommended the person, according to a White House ally and a Trump administration official familiar with the dispute who were granted anonymity to discuss private conversations.

Bessent also ousted a prominent member of Musk’s DOGE team assigned to the IRS, after a major staff reduction was set in motion at the agency.

Gary Shapley, an IRS criminal investigator and whistleblower in the Hunter Biden tax case, was tapped by Trump only days ago to temporarily lead the agency.

However, according to the people familiar with the situation, Shapley was installed largely at the request of billionaire Musk, and Bessent was left completely in the dark about the decision.

Bessent expressed his frustration outside the Oval Office on Thursday and made it clear he wanted someone he could trust to lead the IRS, according to the administration official.

Soap opera screen writers could be writing this script. Let’s hope agency leadership really isn’t important. Scott Bessent alone provides plenty of that sort of fodder (e.g., throwing down the proverbial glove in disputes with other administration officials). So, the volatility should be expected.

Relying on IT

Regarding the idea of leaning into technology as the solution, this story from the Federal News Network reports 1,000 IT staff were reassigned to other functions (in addition to the IT staffing reductions reported by National Taxpayer Advocate):

The IRS is moving about 1,000 IT employees out of its tech shop, as part of a reorganization plan that’s been underway for months.

Impacted employees say they have few details about what work they’ll be doing, and have been told by the agency to instead “focus on completing an orderly transition of your current work.” The notice they received last week states that they will no longer be working on IRS IT projects.

According to the notice, obtained by Federal News Network, the reassignments will go into effect on Dec. 28.

…

Last month, IRS IT directed hundreds of its employees to complete a “technical skills assessment.” According to two IRS IT employees, the test, conducted by HackerRank, consisted of several multiple-choice questions and a coding question that made up the majority of the overall grade. One employee said the questions “had zero to do with our jobs.”

“They did this to say, ‘Look, 98% of our people failed, so we are going to move you or RIF you,’” the employee said.

Sam Corcos, Treasury’s chief information officer and a Department of Government Efficiency representative, defended the IRS layoffs as “painful” in a recent podcast interview, but said they were a necessary tool to get the agency’s stalled IT modernization efforts back on track.

…

“We’re in the process of recomposing the engineering org in the IRS, which is we have too many people within the engineering function who are not engineers,” he said.

“The goal is, let’s find who our engineers are. Let’s move the people who are not into some other function, and then we’re going to bring in more engineers,” he added.

In March, the IRS removed 50 of its IT leaders from their jobs and put them on paid administrative leave. Corcos defended that decision, saying the IRS “has had poor technical leadership for roughly 40 years.”

During the interview, Corcos said the layoffs in the federal government are more restrictive than what’s allowed in the private sector. In practice, he said government RIFs often result in agencies losing younger employees with in-demand skills, but with less tenure — something he said should be corrected.

None of this instills confidence.

Dumb defunding

The temporary budget patch has expired, so Congress needs to come up with something if the government is to reopen. The House’s shot at this is HR 7148 – Consolidated Appropriations Act, 2026 (a different version passed the Senate). Of course, Congressional Republicans are still trying to unravel Biden’s appropriation increases for IRS operations and tax compliance. The last iteration of this in HR 7148 (the enforcement money will be effectively gone). The results are predictable – lower spending and much lower revenues. This note (c on p. 2) from the CBO estimate of the budget effects of HR 7148’s cuts to the IRS are eye-opening (my emphasis added):

Section 528 would rescind $11.7 billion of amounts provided to the Internal Revenue Service in the 2022 reconciliation act (P.L. 117-169). CBO anticipates that rescinding those funds would result in fewer enforcement actions over the next decade and thus in a reduction in revenue collections. CBO estimates that section 528 would reduce revenues by $2.7 billion in 2026, by $25.6 billion over the 2026-2030 period, and by $38.6 billion over the 2026-2035 period.

So, the government will lose over $3 of revenue for each dollar of the spending cut. Brilliant budgeting. This is some combination of weird ideology, stupidity, listening to the wrong people, and bad governance. The adverse effects will also filter through to state and local governments with income taxes. That’s on top of the systematic undermining of the Service’s operations that are otherwise occurring.

A dire view of the House-passed IRS budget comes from the NYU Tax Law Center blog (my emphasis):

“The appropriations agreement’s record cuts in the IRS base budget and nearly $12 billion rescission of funding for IT upgrades guarantee a worse taxpayer experience and more non-compliance. However, by expanding transfer authority, the agreement would give the Trump administration greater flexibility in using the appropriated funds and potentially allow it to paper over the severity of the cuts in the near term, even as the cuts set the IRS up to fail in future administrations.

The agreement cuts base IRS funding, including enforcement, by over one-third relative to its 2010 level, adjusted for inflation. It rescinds more than half of the Inflation Reduction Act funds remaining, and at current spending rates the remainder would almost certainly be exhausted during the current administration.”

Graph from Tax Law Center showing the effect of the changes in a longer-term context:

Status of IRA funding increase

The Bipartisan Policy Center put out a piece on the 2026 filing season, which is worth reading if (like me) you’re into that sort of thing. It contains a nice graph on the status of the IRA increase in funding:

This misleadingly assumes that the roughly $12 billion rescission in HR 7148 has been enacted. Versions of it have passed the House and Senate but needed to be resolved as part of the shutdown negotiations. But it almost surely will happen, which means the expanded funding of enforcement is all but toast. Sigh.

They write letters (on CI)

Congressional letters to the executive branch are a time-honored way of making political points. The pertinent topic now is immigration enforcement, of course. The Dems wrote a couple on that topic that relate to the IRS Criminal Investigations (CI).

The first (dated 1/22/2026) is to five inspectors general, including the IRS’s inspector general. The letter requests that they evaluate whether federal law enforcement resources have been diverted “toward advancing President Trump’s immigration enforcement agenda[.]”

With regard to IRS CI, the letter cites media sources, which I had not seen, as reporting:

More than 1,700 IRS Criminal Investigation employees have been reassigned to ICE as of September 2025, compared to just 250 employees as of June 2025.9 In April 2025, the IRS and DHS formalized a data-sharing Memorandum of Understanding granting ICE access to certain taxpayer return information — including names, addresses, and tax years — to support immigration enforcement, a potentially unlawful departure from the longstanding IRS confidentiality policy,10 and potentially further drawing from IRS resources.

None of the specific questions (see pp. 7-8) the letter poses specifically relate to IRS CI. We’ll have to stay tuned to see if a forthcoming report verifies the extent to which CI agents and resources have been reassigned to immigration enforcement.

I wonder how Secretary (acting IRS commissioner) Bessent’s dispatching CI to Somalia (or at least to investigate funds sent there) will be treated in responding to this. Ignored, I assume. Bessent made these comments in Minnesota FWIW.

Another letter (dated 1/28/2026) from some of the same members to Bessent requests responses to ten questions (p. 4) on the reduction in CI investigations, staff, resources, and the extent to which this is from reassignment to immigration matters. The letter (p. 1) says CI’s annual report (I haven’t seen it) documented:

[I]nvestigations into abusive tax shelters plummeted 63 percent last year to a level roughly 40 percent below every other year in the past decade. As one former head of the shuttered Justice Department Tax Division put it, “There is a usual ebb and flow, but you can’t ignore this number.” [footnotes omitted]

About your retirement package

Tax Notes has this story (no paywall) about IRS employees who took the early retirement (the “fork email”) offer:

Some IRS employees who participated in the deferred resignation program have yet to receive annual leave or annuity payments, with no clear answers for the delay.

Anthony Marasco, who spent nearly 30 years at the IRS, took the second deferred resignation offer and retired effective September 30, 2025. Along with several other recently retired IRS employees, he’s still waiting to receive his annual leave payout and his first annuity payment — months after leaving the workforce.

Marasco said a representative from the IRS Employee Resource Center told him in early December 2025 that the agency was sitting on a backlog of about 7,300 retirement applications and that he should expect to wait about six to nine months before receiving his first annuity payment.

…

From January through June 2025, 17,562 IRS employees participated in the second round of the deferred resignation program, according to the national taxpayer advocate’s midyear report.

More than 20,000 employees took part in both rounds of the program, which was launched as part of the Trump administration’s efforts to drastically reduce the size of the federal workforce.

Another recently retired IRS employee, who spoke to Tax Notes on the condition of anonymity, said the delays have likely been exacerbated by staffing cuts in the agency. The IRS Human Capital Office lost nearly 29 percent of its staff through June 2025, mostly through the deferred resignation program.

“I’ve been in contact with other retirees. We all took the September 30th date . . . we haven’t seen a dime,” the former employee said.

2025 was not a good time to be a federal employee or even to take a seemingly generous early retirement offer. I hope they lined up good private sector or state and local government jobs or have federal pensions that are being paid.

TAS annual report

On 1/28/2026, the Taxpayer Advocate Service released its annual report. As usual, the report is full of interesting information and useful suggestions on how the Service could improve. It gives the IRS good grades on the 2025 filing season but cautions about 2026 filing season, given the dramatic reduction in IRS staff (see table below) and the complex OBBBA provisions which apply retroactively to tax year 2025 (the press release, e.g., cites 8 qualifying rules for the new car loan interest deduction). Here’s the table documenting in IRS staffing cuts:

TPC/Brookings webpage

The Tax Policy Center and Brookings have a new IRS Spotlight webpage that they promise to regularly update with tax administration news. It has a lot of interesting graphics and data.

Tags IRS, IRS funding, Trump

income tax tax administration

Miscellany

Will AI save the IRS IT modernization?

Those of us who have been around forever remember multiple failed efforts to modernize the IRS or virtually any large government IT system, much of which are written in dead programming languages like Cobol and Fortran.¹ MN DOR was slightly better IMO and now has relatively up-to-date computer systems, at least for individual income tax administration (corporate, I’m less sure).²

A recent acting IRS commissioner (one of many) in an AICPA webcast suggested that AI may change that dynamic. AI has many failings (I have personally experienced its tendency to make up stuff multiple times), but writing computer code is supposed to be one of its strengths. In any case, here’s a description of what former acting commissioner Michael Faulkender said in that regard:

When asked how close the IRS was to modernization of its computer systems, Faulkender replied:

“I will give you the same line that I gave a number of times when I was acting commissioner. For 35 years, the IRS was five years away from its IT modernization. We will not say that in the 36th year. The plan was to get it done by the end of this term, so by 2028.”

Faulkender, who was deputy Treasury secretary and acting IRS commissioner for several months in 2025, said modernization of the IRS IT systems previously focused on taking millions of lines of computer code in languages like Fortran – developed in the 1950s – and translating them into more modern languages.

But now, artificial intelligence can reprogram the old code, said Faulkender, who also was an assistant Treasury secretary from 2019 to 2021. “So maybe humans don’t know how to program in those languages anymore, but AI does know how to program in those languages, so we actually don’t need to update code that actually works,” he said.

I hope he is right, but think he is overly optimistic, if not outright delusional. See e.g. this Harvard Business Review article. In any case, real people with experience still need to carefully review, test, and edit the AI-generated code. Software that determines people’s tax liability and other critical stuff is not something you can leave to AI. Moreover, the IRS IT staff has been decimated and undoubtedly has many other critical tasks to perform. Overconfidence in AI has been a mark of this administration (DOGE and all that stuff). So, consider me highly skeptical.

Trump accounts

The IRS has released guidance on Trump Accounts (44 pages; I only read the general overview), enacted as part of OBBBA.³ These accounts are yet another flavor of the IRA structure with, of course, its own set of special rules. The interesting element is that the federal government will contribute $1k for every child born in 2025 through 2028 (assuming the parent or guardian opt in – a big assumption for some). If the kid lives in the right zip code, Michael Dell or Ray Dalio might kick in more. Employers can contribute up to $2,500/year for children of their employees without it counting as income of the employee. Parents and others can contribute as well.⁴

A couple of curiosities I discovered in reading this. The IRS guidance delays the ability to make additional contributions to the plan until the country reaches the 250^th anniversary of the Declaration of Independence:

Contributions to Trump accounts cannot be made before July 4, 2026. (p. 5)

I guess that tracks with signing OBBBA on July 4, 2025. It also raises questions in my mind about the basis for making decisions and how much of it is PR-centric. Not the way I think government should work.

Second, the government website for Trump accounts has this graphic at its top:

What’s odd about it is that eligible investments for Trump Accounts do not include individual stocks, such as those displayed in the graphic. Per page 5 the IRS guidance (or I.R.C. § 530A(b)(3)):

During the growth period, funds in a Trump account may be invested only in eligible investments. An eligible investment, generally, is a mutual fund or exchange traded fund (ETF) that tracks an index of primarily U.S. companies, such as the Standard and Poor’s 500 stock market index, does not use leverage, does not have annual fees and expenses of more than 0.1 percent of the balance of the investment in the fund, and meets other criteria that the Secretary determines appropriate.

The PR flacks creating this stuff should talk to people who know about the substance of the programs they are promoting. But that is probably too much to expect from this administration which appears more concerned about image than substance or truth.

Who’s a socialist?

Cato has an article about the administration’s state corporatist policies. If (as I am) you’re concerned about this, it’s useful reading. It’s easy to forget or miss just how many instances of this have occurred in less than a year of this administration.⁵ This graphic collects instances (not comprehensive IMO) in which the administration took government stakes or is in negotiations to do so in private companies:

There were a lot. It’s easy to forget.

I find this ironic for a candidate and a party that regularly accuses the Dems of being radical left socialists and occasionally communists. These policies are more insidious than anything mainstream Democrats would dare to do IMO. They are categorically harder to justify (for a free market type like me) than most classic Western European democratic socialism policies. Most of those policies are Bismarckian social safety stuff that are useful, if not essential, to maintain modern market-driven developed societies; voters in democracies insist on them.

By contrast, the administration policies of extracting public stakes in private firms in return for regulatory approvals seem categorically different. The impacts of Mamdani’s policies (A few government grocery stores or free bus rides?) pale by comparison.

Hosts of limited government advocates (Club for Growth, Americans Prosperity Alliance, WSJ editorial board, and their ilk) made an explicit tradeoff of ignoring Trump’s total lack of support for democratic principles, presumably, because they judged the horrors of the potential Dems policies’ limits on economic freedom to be worse. State corporatism is what they opted for. That says something about their priorities and their ability to assess political reality (the nature of and probability of policies being implemented). More likely a case of their revealed preferences.

Notes

Disclosure: Fortran is one language that I was able to read and understand (well, most of the routines). I did a modest amount of basic Fortran programming back in the 20^th century. The basic calculations of the federal government’s individual income tax microsimulation model (p. 26) appear to still be written in Fortran. ↩︎
When DOR implemented a new IT system, we researchers expected it would be hugely disruptive and that we would lose access to some data that was irrelevant to tax administration. ↩︎
Yet one more example of appending Trump’s name to random stuff to buff his ego. ↩︎
I personally think that 529 Plans are a superior savings vehicle to pay for college and other education costs. That’s another post, though. ↩︎
The article really does not track the use of merger approvals as a way to effectively extract tribute from private businesses or more ominously to neuter critical media, like CBS or CNN potentially with the Netflix v. Paramount fight over Warner. ↩︎

Tags Trump accounts

income tax tax administration

IRS developments

Filing season

The Service has announced the 2026 filing season will start on January 26^th. The big question is whether reductions in IRS staffing, including the departure of over 20% of its IT and customer service staff (p. 5), and enactment of OBBBA provisions affecting tax year 2025 (no tax on tips and overtime, car loan deduction, etc.) will cause a breakdown.

The Service is on its seventh commissioner with Scott Bessent serving as acting commissioner for an apparently indefinite period of time. In addition to the challenges of being the Secretary of the Treasury, he appears to be easily distracted – e.g., into using the IRS to chase down rumors¹ that seem a bit removed from typical Service activities (whether admitted fraud proceeds went to a foreign terrorist group). The head of the Social Security Administration – a challenging job in its own right – is acting as chief executive and will be in charge of day-to-day operations. Not sure how much comfort that provides.

IRS apparently has reversed course and will be hiring seasonals rather than permanent customer service employees, according to Bloomberg. That should make recruitment more difficult, I assume.

Last year everything went remarkably well with similar but different issues at the top and impending chaos for those in the ranks. But the bar is a bit higher this year and staff who were kept on for the filing season are gone.² So, who knows. I wouldn’t hold my breath and would not file a paper return if I could avoid it.

Flagging audits

Meanwhile, NYTimes reports, not surprisingly, that the number of audits of large partnerships in 2025 was down significantly from 2024:

Since President Trump returned to office, nearly all the senior leaders of the [large partnership audit] operation have left the I.R.S. — taking the newly acquired partnership tax expertise with them. Audits have been abandoned, they have decreased in number and the initiative is foundering.

Progress on complex audits has slowed to a trickle, tax lawyers who specialize in these cases said. The number of large partnership exams has not gone “completely to zero, but it has certainly dropped 80 or 90 percent,” said Gary Huffman, a tax lawyer at Vinson & Elkins who represents partnerships that are being audited. A lawyer who handled roughly 15 such audits in 2024 reported only three in 2025. Another who advised clients on four such audits in 2024 saw zero new audits in 2025.

…

“We were having good success bringing into the I.R.S. seasoned tax and legal expertise to help with complex audits, including for large partnerships,” said Danny Werfel, who served as I.R.S. commissioner for the final two years of the Biden administration. “Because these folks were relatively recent hires, they were probationary employees. When all probationary employees were let go, lots of talent walked out the door.”

…

Profits reported by partnerships exploded to $2.6 trillion by 2022, from $267 billion in 2000, the most recent I.R.S. data shows. Profits reported by traditional corporations grew at about half that pace.

…

With no one left to look for the dodges, tax experts warn that abusive shelters are likely to proliferate.

A recent study by a team of business and law school professors at schools including Stanford, the University of Georgia, New York University and the University of Chicago found that audits of complex partnerships had a “high return on investment,” generating $20 in collected taxes for each $1 spent by the I.R.S. That return is over eight times what the I.R.S. generates from auditing corporations, the researchers found.

Doing large partnership audits seems to me to have a higher cost-benefit payoff than seeing if the Feeding Our Future fraud moneys made their way to al-Shabab. Discovering that the latter occurred would obviously be bad, but the payoff would largely be partisan political scalps, rather than internal revenues.³ That’s world we live in.

Notes

Per Fox News: “Bessent said Friday [1/8/2026] that the Internal Revenue Service (IRS) Civil Enforcement is auditing financial institutions that allegedly supported the laundering of Minnesota funds, and that the IRS is planning to unveil the ‘formation of a task force to investigate any fraud and abuse involving pandemic-era tax incentives and misuse of 501(c)(3) tax-exempt status by entities implicated in the Minnesota based social services fraud schemes.’” ↩︎
IRS employees with filing season responsibilities were prohibited from taking the Fork Email early retirement. ↩︎
I’ll be surprised if Bessent’s inquiry results in criminal charges or sanctions on financial institutions for money laundering. ↩︎

Tags IRS, IRS compliance income tax

books estate tax income tax

Books I’ve Read Recently – The Second Estate

Post author By saltspeak
Post date January 9, 2026
No Comments on Books I’ve Read Recently – The Second Estate

This is another in my series of bad high school book reports on selected nonfiction books that I have read recently. I write them to memorialize my thoughts in the vain hope that I will remember a bit more of what I read.

Author and book

Ray D. Madoff, The Second Estate How the Tax Code Made an American Aristocracy (U of Chicago Press 2025).

Madoff is a tax professor at Boston College Law School. I have read some of her law review articles over the years. One of her areas of expertise is the tax law’s intersection with charities and nonprofits. (I put her up there with Roger Colinvaux and Ellen Aprill as top experts on that topic.) Until I read blurbs for this book, I did not realize that estate tax and planning was also an area of her expertise. That jibes with her interest in charities, since charitable giving is a key part of estate planning for the uber wealthy.

The title derives from the nomenclature of France’s ancien regime. The Second Estate¹ was the aristocracy, which famously paid little to no tax, shifting that burden to the third estate, the general populace. Some consider that to be a main cause of the French Revolution (well, economic and social inequality might be a broader formulation). Hence, the old French saw: “The nobles fight; the clergy pray and the people pay” and the subtitle and subtext of the book – that America’s tax system has created a sort of aristocracy of the ultra-wealthy by lightly taxing them.

Why I read it

I was interested in the book both because of my favorable view of Madoff’s work and the book’s topic – an attempt at an accessible overview of what has happened to the federal income and estate taxes over the last 50 years.²

The more specific trigger was I knew that Madoff was doing a book event at my youngest daughter’s workplace, The Center for Brooklyn History. So, I asked her to buy a copy for me at the event, which she did, got Madoff to sign, and brought to me when she came home for Thanksgiving.

What I found interesting

Basic thesis. Madoff’s book is (to be honest) an advocacy piece to convince a reader with little to no tax background that:

The federal tax system since the 1980s has become much more regressive, tilted to the rich/affluent as a result of systematic Congressional tax cuts and its inattention to closing loopholes as they have been developed.
This results mainly from lower rates on realized income from capital and, more importantly, much income of the wealthy never being taxed at all.
The net effect is to materially cut federal revenues and is a big part of the nation’s fiscal problems.
Her reform ideas would go a long way to fixing this.

Description of how this occurred

Most of the book (all but the last chapter) is her description of how this occurred. It’s a familiar narrative for someone steeped in tax policy and she does a nice job of making it understandable to an interested, intelligent general reader.

To simplify her account, the avoidance strategies flow from various combinations of the income tax’s realization requirement (sale or exchange of an asset is needed to trigger income), stepped-up basis (capital gain tax excused by the owner’s death), allowance of share buy-backs, and the ability of business owners to characterize their labor income as income from capital. Those features enable the Buy, Borrow, and Die avoidance structure that slips the grasp of both the income and employment taxes.³ Much business and labor income becomes capital gain that is deferred until death and then, forgiven.

That leaves the estate and gift taxes, which are avoided by the ultrarich with a combination of a variety of valuation dodges (the book does not discuss this much, a failing I think), charitable giving that too often does not yield public benefits comparable to the tax avoided, and other measures.

The book provides narratives of both the tax avoidance playbook (as she puts it) and some of the legislative changes that enabled those strategies. The strongest chapter – not surprisingly, I guess, given her academic focus – is the chapter on philanthropy. (It has more detail and seems more evenhanded by discussing a bit more of the policy rationales for the overly generous – in her and my views – tax benefits and why they’re invalid.)

Three of the many nuggets in her account that I found interesting:

121 of the people on the Forbes 400 list inherited their fortunes.⁴ The Forbes 400 is an inexact measure of wealth. As I have noted before, it likely misses a lot of the top people. That does not lessen Madoff’s basic point that inherited wealth is a very big deal and it undercuts the policy argument that low taxes are essential to incent risk taking and work by the wealthy. That general point has never made sense to me.⁵
Julius Rosenwald, whose fortune derived from Sears, built nearly 5,000 schools in the South in the early 20th century. I was completely unaware of this guy and his efforts. P. 147.
The dramatic rise in the amounts of charitable contributions to private foundations and donor advised funds (rising from 6% in 1993 to 41% in 2023). I knew it had gone up quite a bit, but not sevenfold. P. 142.

Her fix

The book’s last chapter describes her reform ideas, which consist of three basic parts:

Repeal the estate tax and tax inheritances and gifts to the recipients instead under the income tax.⁶
Raise the tax on investment and property income. The key component is to tax capital gains at death. She doesn’t say, but I assume she would also eliminate the lower rates for realized capital gains and dividends, as well as the various dodges that recharacterize labor compensation as investment income (e.g., carried interest).
Reform the tax treatment of contributions to charities.

All these changes make policy sense to me, although I could imagine alternatives that would augment her changes.⁷ Much of her perceived advantages are on the perception end of things (e.g., taxing inheritances and gifts under the income tax rather than transfer taxes).

What disappointed me

The book is essentially an advocacy piece. In that sense, it reads more like a legal brief than an academic article. I had the uneasy feeling it was constructed to make as strong a case as possible and did not engage enough with the countervailing arguments and rationales. That would have made a longer and more complex book that would have much less appeal to her perceived audience. At least, I assume that was her thinking.⁸

One irritation to me was that in the preface (p. xiv), Madoff implicitly teases the idea that doing a better job of taxing the very rich can solve (or maybe mostly solve) the federal “fiscal crisis” (her term, but I wholly agree). In her words:

A frequent refrain is that taxing the rich wouldn’t make much of a difference in this. But the top-line numbers of the federal budget show that claim to be without merit. p. xiv (end notes omitted).

Given that tease, I assumed the book, at some point, was going to address this issue, at least in broad terms. Roughly how much of the fiscal problem would be fixed by Madoff’s proposed solutions? It never does.⁹ That was a disappointment, since I regard the ever-growing budget deficit is one of the big fiscal challenges the country faces. I get that revenue estimating is outside of her expertise; she’s not an economist. But she could have attempted to assemble estimates prepared by JCT, CBO, TPC, etc. to at least give an impression of how much could be raised by her proposed changes. One problem is that they are stated in such general terms that it would be impossible to put numbers on them.

I think a principal reason why Madoff wrote the book is that she perceives that progressive advocates (members of Congress, staffers, think tank types, etc.) of taxing the rich have simply not done a very good job both in designing their policy proposals or in explaining and advocating for them. The book is her attempt to show them the way.

A key part of that is her thinking is to emphasize inheritances are income by taxing them directly that way, while making it utterly clear that they have never been taxed as income either to those who originally earn them or inherited them (thanks to stepped basis). Count me skeptical as to whether that will move the political acceptability needle or not. Polling, focus group, or psychological lab testing data would help (nothing that law profs do typically, though).

Some niggling reactions:

One of her assertions is that Congress’s failure to pay attention to the tax avoidance machine and to regularly enact technical correction bills and to close developing gaps is a major cause of the problems. I think that is absolutely the case, since the late 1980s. A chapter with details devoted to that reality would have been nice.
The book glosses over technical details to keep the account brief and assessable (I assume). I understand that but was puzzled by some apparent simplifications. For example, she regularly refers to the top capital gains tax rate as 20%. Since the NIIT applies to capital gain income, the effective rate is really 23.8%. To be fair, she is consistent and her use of the 20% rate reduces the implicit subsidy for charitable contributions (avoiding capital gain and estate taxes + subsidy for reduction of ordinary income through deducting FMV of contributed property), which she also refers to as being too high. So, it’s not like she’s fudging the numbers to favor her message.
What’s missing from her reform agenda IMO is shoring up the FICA/SECA tax system – in particular, S corp and limited partnership distributions, as well as better indexing¹⁰ or eliminating the ceiling on the portion of tax funding OASDI benefits. I get why she did not discuss this. It doesn’t fit generally with her narrative that the problem is the under taxation of investment income and inheritances and that analyses of tax burdens too often ignore the payroll taxes (i.e., FICA and SECA).
The book does not mention the burgeoning use of Exchange Traded Funds or ETFs, which I think are eroding the tax on mutual fund capital gain income. This affects the mass affluent more than the billionaire class who seem to be the focus of her ire. I still think it is slowly (or not so slowly) blowing a hole in the tax base and primarily benefiting the affluent although not the top 0.01%. I would stop treating them differently than traditional mutual funds.

SALT connection

The national erosion of the tax base, enacted and/or abated by Congress, filters down to state and local taxation. However, the structure of the breaks that Congress has given to capital gains and dividends – in the form of alternative lower tax rates – typically does not affect states tax bases. For example, Minnesota continues to tax capital gain and dividend income at the same rate as ordinary income. Many other states (notably CA) do so as well.

But the bigger part of Madoff’s narrative – the conversion of corporate profits and business earnings into capital gain that is deferred until realized and ultimately forgiven at death for bequests (Buy, Borrow, and Die) does affect state tax bases. All state income taxes (to my knowledge) follow the federal rule and step up basis at death. The campaign against and resulting erosion of the federal estate tax – plus EGTRA’s repeal of the federal credit for state estate and inheritance taxes – accentuated the effect on state tax bases. It has caused two-thirds of states (33) to repeal their estate and/or inheritance taxes.

So, Madoff’s story is very much also a SALT story, although she does not delve into or mention that.

My Take

I’m sympathetic to Madoff’s thesis but skeptical of just how central taxes are to the socio-economic changes in American society that have occurred from the end of the New Deal Era (roughly sometime in the late 1970s) to now, the rise inequality and particularly the growth in the very top’s share of wealth and income. Tax changes over the last 40+ years have certainly reduced the system’s progressivity but it remains progressive.

I suspect that it is more a story of cultural change and social acceptance of a winner-take-most society that started to take hold in the 1970s. Malaise (Jimmy Carter’s word) over stagflation made the nation susceptible to the philosophy of Reagan/Friedman/Mont Pelerin Society.¹¹ This philosophical shift enabled shareholders and top management to appropriate more corporate profits with a lesser share for ordinary employees (remember the “Greed is Good” narrative of the 1980s that would have been verboten during the 1930s to the 1960s), sidelining of unions, reducing antitrust enforcement, and similar. All of these are mainly non-tax stories. Tax was a factor. I just don’t think it was the or the most important factor.

Similarly, America’s tax system continues to be significantly more progressive than Europe’s, which follows a model of much higher overall taxation that is less progressive (heavy reliance on consumption taxation through VATs) but funds a more generous social safety net. Europe’s rise in income and wealth inequality has been much more modest. I tend to think their model works better. Even though America’s economic growth has been more robust, way too much of it has gone to the top and I’m skeptical how much of America’s growth is really attributable to taxing the rich at low rates.

Over the last dozen years, the US has seen a rise in the share that pre-tax corporate profits comprise of GDP with declines in the similar share of employee compensation. See the graph that I extracted from Fred below. Before 2006, pretax corporate profits (solid blue line, right axis) were consistently below 14%, typically a lot below. Since the end of the Great Recession, they are well above that. The employee compensation share (dashed green line) moves inversely to the profit share. That means they’ve been quite a bit lower over the last years – more of return is going to capital and less to ordinary workers. Interestingly, that was not the case in the 1980s and 1990s.

This Greg Ip WSJ column (gift link), published after I wrote the original post, makes my point more colorfully, including explicit examples (Nvidia v. IBM), and with a similar graph calculated to be more dramatic.

There is empirical evidence that top management is capturing more of the employee compensation share of corporate revenues, including part of the reduction in corporate taxes (but that does not affect the blue line in the graph which is pretax). The classic case is the dramatic rise in the ratio of CEO to average worker compensation. From Wikipedia:

[A]n April 2013 study by Bloomberg finds that large public company CEOs were paid an average of 204 times the compensation of rank-and-file workers in their industries. By comparison, it is estimated that the average CEO Pay Ratio was about 20 times the typical worker’s pay in the 1950s, with that multiple rising to 42-to-1 in 1980, and to 120-to-1 in 2000.

That these shifts were caused mainly by tax changes seem dubious to me. More likely, I would guess they were due to a vector of social and cultural variables. It’s too easy for those of us who spend most of our professional lives studying taxes and tax policy to overemphasize their importance. I suspect that Professor Madoff has fallen a bit into that trap.

That said, a very progressive tax system (like the fixes that Madoff suggests) would reduce inequality and provide material revenue to fund our current social safety (i.e., reduce the deficit) or expand it. However, I tend to think that taxing income to fund redistribution it is harder to do social-politically than creating a culture of social norms against a winner-take-most system.

The latter is what America had in the decades after the Great Depression. It meant that unions were stronger and social norms encouraged allocating more of business revenues to ordinary workers and less to shareholders and top management. Obviously, this is all pure speculation, and I think both sets of changes go hand-in-hand: the progressive tax fixes will only occur with changes in social norms. That said, I do think that a robust consumption tax system (i.e., a VAT) is necessary to provide a European style social safety net. I’m more persuaded by another tax academic, Ed Kleinbard, who wrote accessible books on this topic than Madoff, at least WRT to big fiscal fixes.

Notes

First estate was the clergy; third, more or less everyone else. Later, the fourth became the press. ↩︎
Many of her views align with mine. To wit: the overall sweep of federal tax changes over the last 50 years is characterized by a dramatic reduction in the taxation of capital income, employment compensation of high-income earners, and wealth transfers. WRT the reduction in tax on capital income, this graph per Gene Steuerle says a lot.
I try to resist simply reading stuff that I know will largely confirm my priors, regarding it as enabling a lazy mind and wasting my time, but the book was short (>200 pp) and I’m always curious about how technical experts attempt to communicate with the nonexpert public on tax policy and law. ↩︎
Lifetime consumption financed by borrowing also avoids the estate tax, because the debt incurred reduces the estate’s taxable value. But the uber wealthy do not consume most of their income/net worth, so avoiding the estate tax requires additional measure such as discounting valuations, shifting appreciation in assets to later generations of heirs, creating charitable foundations that really carry out their personal agendas, and similar. ↩︎
There must be some ambiguity as to how to treat heirs who continued to run businesses that increase in size dramatically (i.e., more than an index fund) during their tenures. ↩︎
Higher rates of return, enabled by low taxes, are not necessary to increase their or their heirs’ ability to consume. The fact that a goodly portion of the very wealthy are on a never-ending quest to maintain and build that wealth has always struck me as a matter mainly of relative competition – against each other for status and to create business, social and political power. Social rules (i.e., higher taxes) that disadvantage all of them, more or less equally, will have little effect on the incentive to engage in that sort of competition. ↩︎
My observation: The advantages of this are largely a matter of political acceptability or public perception. Addressing the key weaknesses in the current system – valuation issues and a too big exemption amount – are not fixed by the structural change. Count me skeptical that the difference in perception will matter much. ↩︎
As an aside, I agree with her rejection of a wealth tax as an unnecessary diversion that SCOTUS would almost surely strike down based on what the opinions in Moore revealed. It also has a host of administrative and political acceptability problems. ↩︎
Ed Kleinbaum’s two books are a contrast that I found more satisfying. The problem with his more nuanced and detailed analysis is that Madoff likely considered it less assessable to the broad audience she sought to reach. ↩︎
I omitted two end or footnotes from the quote. Neither of them provides, in my judgment, any support for the statements. They simply cite wealth estimates of the top 1%, not how much income is excluded from the tax base. One mistakenly refers to billions when it must mean trillions, obviously just a typo. ↩︎
A good case can be made that it should be a fixed percentage of overall compensation, not an index of wage increases that is now used. That would capture the increasing tilt of the distribution of labor compensation toward the highest incomes. ↩︎
I think Friedmans’ persuasiveness was an underrated factor. PBS even made a series out of Free Choose. ↩︎

Tags charitable contributions

tax administration

Criminal tax prosecutions

Post author By saltspeak
Post date December 11, 2025
No Comments on Criminal tax prosecutions

Yesterday’s Reuters story, Tax prosecutions plunge as Trump shifts crime-fighting efforts (12/11/205), was no surprise when it reported that DOJ tax prosecutions declined by 27% this year (through 11/1/2025) compared to 2024.

Reuters used data extracted from Westlaw from 1990 on. This year is an all time low as shown in this graph from the story:

The story reports some interesting and troubling details about what is going on (in addition to the dramatic reduction in IRS staffing and shuttering of the DOJ Tax Division). Some excerpts:

The administration made deep cuts to the Internal Revenue Service’s criminal investigative unit, and some of those who remained were ordered to start working on immigration cases or anti-crime patrols in Washington, according to government records and officials, speaking on the condition of anonymity because they were not allowed to discuss their work publicly. At the same time, the Justice Department closed its Tax Division, and officials said a third or more of the criminal lawyers who worked there quit.

…

Reuters used federal court dockets to count the number of Justice Department attorneys who appeared on behalf of the government in tax prosecutions between January and the beginning of November. Last year, about 420 did. This year, about 160 have.

Top Trump administration officials told prosecutors early this year that tax investigations were not a priority, three people familiar with the discussions said, speaking on the condition of anonymity to discuss the department’s internal deliberations. Participants concluded that the department’s new management was “very skeptical about white-collar crime and whether we should be doing those cases,” one person familiar with the discussions recalled.

…

At least a third of the roughly 80 criminal prosecutors who worked in the office [DOJ Tax Division] at the beginning of the year quit rather than be reassigned, two officials familiar with its staffing said.

…

U.S. attorneys’ offices that could pick up some of that slack have also lost prosecutors with experience in white collar cases, current and former Justice Department officials said. Department records show more than 1,000 lawyers have left U.S. attorneys’ offices this year, roughly double the number who quit or were pushed out in previous years.

…

The IRS investigators who remain “are being pulled in a lot of directions,” some of which are unrelated to taxes, a former Justice Department official who witnessed the changes said. “The damage being done is significant.”

In Washington, the new responsibilities for IRS investigators have included conducting patrols alongside city police officers as part of a show of force Trump ordered this year to combat what he called a crisis of crime in the capital city.

The IRS’ office in Washington initially sent only a few of its roughly 60 agents to assist with those patrols. But after Trump aide Stephen Miller complained, the office upped that amount to more than 20 agents to patrol the streets, two people familiar with the deployment said.

Good grief is all I can say to 20 IRS agents assigned to patrol the streets of Washington DC. These people are not serious about running a government. The pattern squares with multiple inexplicable pardons of white collar and tax criminals, as well as a president who views aggressive tax avoidance (to the edge of evasion) as smart.

Need to assure donors? Just ask.

Another data point on how the IRS is truly a different agency than the one I was familiar with during my working career: this CBS story, Treasury Dept. tells Erika Kirk Turning Point USA not under investigation, following social media rumors (12/9/2025):

The Treasury Department sent a letter last week to conservative influencer Erika Kirk with findings that contradict fraud allegations about the finances at Turning Point USA and could help her refute those claims, sources told CBS News.

Questions were being raised on social media about the finances at Kirk’s organization, Turning Point USA, and podcaster Candace Owens and others were urging donors to demand refunds. That led a few of its small-dollar donors to ask for their money back, one of the sources said. Erika Kirk runs the nationwide conservative college student organization co-founded by her late husband, Charlie Kirk.

…

The letter said none of the four tax-exempt entities Kirk now runs — Turning Point USA Inc., Turning Point Action Inc., Turning Point Endowment Inc., or America’s Turning Point Inc. — are being examined by or are under investigation by the IRS, and all of the entities “submitted on time” all their 990 forms to the IRS this year. Contents of the letter were shared with CBS News.

Asked about the swift response to aid the conservative organization’s efforts to combat the social media rumors, a senior Treasury official said: “The IRS is able to provide this type of information upon request by the taxpayer. And in this case, it’s hideous that malicious lies and smears obligated her to make the request.”

That’s a service I had never heard of the Service offering.

Tags compliance, income tax, IRS

Uncategorized

Health care subsidies

Gene Steuerle has a good Substack post (“What Liberals Miss from tshe Recent Healthcare Debate: People Feel Entitled but Not Empowered by Many Government Transfers”) on the debate over extension of ACA tax credits. It’s short and worth reading on several levels IMO, providing insights into the effects of America’s massive allocation to health care services and the politics of providing and withdrawing direct government subsidies.

His opening paragraphs starkly illustrate the effects of America’s lopsided allocation FN of GDP/income to health care services:

After several decades of [allocating a substantial share of the growth in income to healthcare], total [U.S.] healthcare costs per household exceed $40,000, while insurance policies for working-age families typically cost more than $20,000. Politicians then insist that individuals should not be required to spend more than 10 percent of their income on these costs. This type of claim implies that only households earning more than $400,000 could afford to cover their share of the national health expenses. However, whether we pay through taxes, out-of-pocket outlays, lower cash wages, or government borrowing, we spend approximately 22 percent of personal income on health care.

That in my mind is a simple and clear illustration of the magnitude of the economic effects of our runaway health care system structure. It is a system in which somebody else pays without an overall budget constrain. As a result, we allocate almost twice as much economic output than other developed countries to health care services.¹

It’s no surprise that when the subsidies (i.e., ACA tax credits) are withdrawn and personal costs rise dramatically, people are unhappy. Their displeasure will be directed at those responsible: the GOP.

What’s less obvious and creates consternation for Dems is why people do not give them credit for providing the subsidies in the first place. He cites others (Paul Krugman and Suzanne Mettler) to explain why: when people receive uncertain benefits, such as health coverage, they think they have earned them. Steuerle’s additional insight:

[I]t’s not just that voters often treat a benefit once received as an entitlement or “earned,” as Mettler claims. Many feel disempowered by a heightened sense of dependency and inability to make their own way. Many of these effects are indirect but very real. Transfers that become very large, such as in healthcare, displace much of what the government could provide to workers through programs that are more likely to enhance their productivity and take-home pay. Even for employees who receive fewer healthcare transfers because they have employer-provided insurance, high costs severely depress the cash wages employers can pay them. So, not only do workers fail to give Democrats much credit for giving them what they feel entitled to, but at times they rebel by turning to populists who tell them to blame their declining sense of control on immigrants or other government beneficiaries who receive “welfare” or foreign aid recipients.

Side effects are that health care subsidies crowd out government spending on education, research, and other efforts to build human capital that enhance general welfare and the political pattern passes the subsidy bill on to future generations. That is, the GOP backs down and uses deficit spending to keep the subsidies flowing at the expense of future generations.²

Notes

There is no objective way to say whether that is bad or good. It’s a preference. My instinct is that it is suboptimal. Yes, health care is definitely a superior good, but I suspect that it reduces the US’s general welfare compared to with that of Europe, Canada, etc. ↩︎
Steuerle seems to assign equal or more responsibility for resorting to deficit spending. I disagree with him on that. It likely was the case in the 20^th century but has IMO ceased to be so in the face of anti-tax malignancy that has taken over the GOP essence. ↩︎

Tags health care

tax administration

November IRS News

This post consists of excerpts from and my comments on five media stories related to the IRS that appeared in November. They’re in chronological order, not how I assess their importance.

Direct file ends

What I had assumed would occur now is official, the IRS is ending (“suspending”) the direct file program under which the government itself provides software to calculate and file your income taxes. (The Free File program by private software firms and fill-in PDF forms – no tax calculations – will continue, though.) The IRS did not announce it but sent an email to the state tax agencies according to the Federal News Network (11/5/2025). The New York Times story has more detail.

This seemed certain to happen given the views of GOP members of congress and the conclusion of the Treasury Department’s mandated report on it:

Direct File had low overall participation and relatively high costs and burdens on the federal government, compared to other free filing options. . . . Direct File’s complexity and technical demands also diverted IRS resources from other core priorities. Meanwhile, successful, longstanding programs, such as Free File (which already covers a broader eligibility population than Direct File and operates at little cost to the government), were not fully promoted or optimized during this period.

The report estimated a cost of $138 per return without taking into account indirect costs.¹ Scale economics and long-term fixed costs suggest the per return cost would drop over time and as its usage increased (marginal per return cost had to be very low). Free File’s asserted broader eligibility is questionable. It likely reflects the more limited geographical reach of Direct File until more states could come on board. Direct File had much higher income eligibility than Free File ($200K v. $84k for Free File).

I have mixed feelings about this, but my take is that the software firms who provide Free File services are inherently conflicted (their business model is to sell the software, not to give it away) and I lean toward the government bearing the cost of basic preparation and filing. Software is virtually essential now, given the complexity of the code. (Thank you, Congress.) Providing free software to do the calculations is similar to providing paper forms in days of a simpler code without income phase-outs, an AMT, and similar. (People would not have been pleased if the IRS charged for tax forms, while allowing low-income people to get them free from the IRS’s printer.) It’s analogous to a sales tax credit for retailers to offset some of their costs of collecting the sales tax for state and local governments.

Giving away tax base

I have discussed before how the IRS for various reasons undercuts the revenue intended to be provided by legislation (usually offsets to fund GOP tax cuts or Dem tax cuts or spending increases). Sometimes, that is a matter of practical necessity (e.g., delay of expanded information reporting for gig workers, now repealed), fear of popular/political blowback, and in other cases is simply inexplicable (allowing pass-through entity level taxes to avoid the SALT deduction limits). Even if the concessions are contrary to the letter of the law and intent of Congress, rarely does anyone have standing to and the wherewithal to challenge them.

The NY Times published a story (How the Trump Administration Is Giving Even More Tax Breaks to the Wealthy, 11/8/2025) that mainly focuses on undercutting the new corporate alternative minimum tax or CAMT, enacted to offset the cost of Inflation Reduction Act (a/k/a Biden’s infrastructure bill).

It’s hard to tell from the article what the agency’s rationale was for the various dilutions of the CAMT and other provisions. CAMT, of course, undercuts the investment incentives in TCJA and OBBBA (see this Brookings piece, e.g.). So, undercutting it will further the administration’s and GOP Congress’s agenda. But that certainly is no justification. Moreover, as the article points out, it is done without accounting for the cost, as enacting actual legislative changes would and is sure to increase the deficit materially. The changes are permanent features, in most cases. The article quotes speculation that hundreds of billions may be involved. Hard to judge the quality of such speculation, but it seems credible.

Most troubling is that the article asserts the crypto industry is a big beneficiary of the concessions. That’s an industry that adds little social value (as far as I can tell) and is the subject of some of the most lucrative grifting by Trump and his family, along with other administration insiders (like David Sacks) in other contexts.

Here are some excerpts from the Times article:

The Treasury Department and Internal Revenue Service, through a series of new notices and proposed regulations, are giving breaks to giant private equity firms, crypto companies, foreign real estate investors, insurance providers and a variety of multinational corporations.

The primary target: The administration is rapidly gutting a 2022 law intended to ensure that a sliver of the country’s most profitable corporations pay at least some federal income tax. The provision, the corporate alternative minimum tax, was passed by Democrats and signed into law by President Joseph R. Biden Jr. It sought to stop corporations like Microsoft, Amazon and Johnson & Johnson from being able to report big profits to shareholders yet low tax liabilities to the federal government. It was projected to raise $222 billion over a decade.

…

“Treasury has clearly been enacting unlegislated tax cuts,” said Kyle Pomerleau, a tax economist at the American Enterprise Institute, a right-leaning think tank. “Congress determines tax law. Treasury undermines this constitutional principle when it asserts more authority over the structure of the tax code than Congress provides it.”

The alternative minimum tax isn’t the administration’s only effort to roll back taxes on large businesses and wealthy individuals. Last month, the Treasury and I.R.S. granted new tax relief to foreign investors in U.S. real estate. In August, they withdrew regulations to prevent multinationals from avoiding taxes by claiming duplicate losses in multiple countries at once. And, as The New York Times previously reported, the Treasury and I.R.S. have rolled back a crackdown on an aggressive tax shelter used by big companies, including Occidental Petroleum and AT&T. That amounts to another $100 billion in cuts — and likely far more, according to tax advisers.

…

The Treasury’s actions are probably contributing hundreds of billions of dollars to the federal deficit, tax experts said. That is on top of the trillions that the legislation signed by Mr. Trump in July is already adding to the deficit. Yet unlike laws passed by Congress, Treasury is under no obligation to publicly account for revenue lost by its actions — such as cutting spending to offset the money no longer being collected.

Opting crypto out of the CAMT:

The [CAMT] could have swept in two of the biggest crypto firms, Coinbase and Strategy. In response, they sought rule changes for calculating the minimum tax. Three high-powered legal advisers — Michael Desmond, who served as the I.R.S. chief counsel in the first Trump administration; Andrew Strelka, formerly senior tax counsel in the Biden administration; and Eugene Scalia, the labor secretary in the first Trump administration — pushed to exempt “mark to market” gains reported to investors. Those gains reflect the increase in value of the investments held by companies that haven’t been sold yet.

On Sept. 30, the I.R.S. granted their request, explicitly citing “digital assets.” Big crypto companies “have been granted a reprieve,” lawyers at Vedder Price wrote.

Monte Jackal as characterizing the changes as an effective repeal of the CAMT. (Seems a bit over the top to me.)

Conflicts at the top

The IRS commissioner position has been a revolving door under the Trump administration. We’re on the seventh commissioner or acting commissioner, when you include Danny Werfel, Biden’s commissioner who left shortly after Trump was inaugurated. Scott Bessent, the Treasury Secretary, is now acting commissioner.

Before becoming Treasury Secretary, Bessent was a hedge fund guy. He was a principal at Key Square Group. The NY Times published a story that revealed his old hedge fund has taken the position that limited partners who are actively involved in working for or managing the partnership (as Bessent was) do not need to pay Social Security and Medicare (SECA) taxes on their non-guaranteed partnership distributions. The I.R.S. Tried to Stop This Tax Dodge. Scott Bessent Used It Anyway (11/12/2025).

The IRS (the agency Bessent now directly heads) takes the position that these limited partners are not limited partners (i.e., passive investors) who are exempt from the SECA taxes on their nonguaranteed payments.² In its view, these limited partners are garden-variety partners who must pay SECA taxes on their non-guaranteed payments. (The statute explicitly exempts the guaranteed payments.) The IRS won a Tax Court case on this issue in 2023, which is on appeal.

This tax minimization strategy is analogous to the more publicized use of S corporations to shield pass through entity income from full SECA taxation. Multiple high-profile politicians have used this gambit – John Edwards, Newt Gingrich, Joe Biden, and many more. Broadly closing off these strategies would raise a lot of revenue and is one option (indirectly through subjecting them to the NIIT) I suggested to fund the Dems’ proposal to continue the more generous ACA credits.

The story reveals that Bessent did not appear troubled by the fact that he has and is taking a tax position contrary to the agency he now manages. According to the Times story:

Mr. Bessent has stood by the tax maneuver. During his confirmation process to lead the Treasury Department, which oversees the I.R.S., Mr. Bessent said he would not follow the I.R.S. position that limited partners like him owed those self-employment taxes.

Instead, he said he wanted to see how ongoing legal challenges would pan out. He pledged to create “a reserve fund to address any contingency related to this issue” and said the amount in question was smaller than the $910,000 described by Democrats. He also committed to winding down his hedge fund.

Tax experts quoted by Times do not agree. (I can attest to Professor Burke’s bona fides. She was formerly a U of M law professor, and I took a week-long partnership course from her. She is a national expert in partnership taxation.)

“There’s zero question that this is abusive,” Walter D. Schwidetzky, a law professor at the University of Baltimore who focuses on partnership taxes, said of the ability for business owners to avoid self-employment taxes through limited partnerships. “No one of good faith would argue otherwise.”

…

“What surprises me is that there’s a precedential Tax Court opinion that Scott Bessent seems to say, ‘That’s not good enough for me,’” said Karen Burke, a tax law professor at the University of Florida who has written about the limited partnership exemption.

The Biden Administration had a regulation project to explicitly foreclose claiming the exemption, but the Trump Administration appears to have dropped it. The article notes that the staff turmoil at the agency and DOJ (in addition to Bessent’s public statement, I suppose) may undercut the government’s litigating position on appeal:

The U.S. government continues to defend the I.R.S. position in court, but it is now doing so with a weaker hand, tax experts said. The Trump administration has moved to disband the Tax Division at the Justice Department, which represents the I.R.S. in appellate court, and many tax lawyers in the department left amid the turmoil there, former officials said. One of the lawyers who represented the I.R.S. in the Fifth Circuit case involving the limited partner question, for example, withdrew from the case and left the government this year.

“The proposed restructuring of the Tax Division will not impact the ability of its civil litigators and criminal prosecutors from advancing its mission to fairly and consistently enforce the nation’s tax laws,” a spokeswoman for the Justice Department said.

The I.R.S. has lost not only much of its overall staff, but much of its leadership, too. Several of the agency’s top officials focused on tax enforcement have been pushed out, put on leave or quit.

This is just another (comparative mild) example of questionable ethical behavior by administration officials and a seeming lack of concern about defending the tax base.

MAGA mugging

Trump nominated Donald Korb to be IRS chief counsel. I thought this to be a modestly bright spot in an otherwise dark picture for the agency. Korb served in George W. Bush’s IRS as chief counsel, as well as a few other IRS roles before that. He is a respected tax lawyer with a long career, a typical conservative normie Republican. The Senate Finance Committee had recommended his confirmation.

Well, it was not to be. He’s out. Per Politico (11/14/2025):

President Donald Trump abruptly withdrew Donald Korb’s nomination for IRS chief counsel on Friday.

While Trump didn’t explain his decision, right-wing political activist Laura Loomer reposted Trump’s announcement on her X account, along with the hashtag “#LOOMERED.” Loomer, who’s sidelined several administration officials, chastised Korb on Wednesday for praising Democrats and donating to them.

I regard that as unfortunate depending upon who his replacement is. The leak by Senator Wyden regarding Korb’s questionable comments in a private meeting with Finance Committee staff and his public comments on the data sharing agreement, as reported by Tax Notes (no paywall), suggested to me that Korb might be in trouble with the MAGA types and was trying to pander to them. Loomer is a whacko, whose targets are impossible to predict (much less whether Trump acts on them). Who knows why a typically below the radar appointment like IRS chief counsel would attract her attention? This is not good, anyway you view it.

The federal district court for DC has decided the IRS data sharing case that I previously blogged about here, granting a stay and a preliminary injunction of the data sharing policy. Links: to court’s memorandum and WaPo story (11/21/2025).³

The court accepted the plaintiffs’ arguments on the address issue and the rejected the government’s position that one or a few ICE employees could be “personally and directly engaged” in criminal investigations of thousands of individuals for which data was requested. The court likely thought that was simply not possible for one or two people to do that, because being personally engaged requires more than a cursory paper check as the government asserted.

The court’s memorandum, in deciding the agency had taken final, reviewable action describes how extensive IRS’s actions were:

Plaintiffs’ factually uncontested allegations show that the IRS spent an unknown amount of money developing the capability to conduct mass transfers of taxpayer information; entered into an agreement with ICE to conduct mass transfers of confidential taxpayer address information; and then completed a mass transfer of confidential taxpayer address information to ICE pursuant to this agreement, all while removing high-level individuals who disagreed about the disclosure process. This marks the consummation of the IRS’s decision-making process. page 40.

The IRS, according to the court’s memorandum, committed multiple violations of the statute in one instance in which it provided ICE with information for 47,000 individuals:

In sum, Plaintiffs have shown that the IRS committed multiple violations of Internal Revenue Code Section 6103(i)(2) when it disclosed confidential taxpayer address information to ICE on August 7, 2025. The IRS’s disclosure of address information for 47,000 taxpayers to a single individual at ICE violated the requirement in Section 6103(i)(2)(A) that the IRS disclose taxpayer information only “to officers and employees of [a requesting] agency who are personally and directly engaged in” a criminal proceeding or investigation. Furthermore, the IRS’s August 7 disclosure to ICE violated Section 6103(i)(2)(B)(i) because the IRS disclosed thousands of taxpayers addresses to ICE without first confirming that ICE provided the “address of the taxpayer with respect to whom the requested return information relate[d].” In addition, the IRS’s August 7 disclosure to ICE violated Section 6103(i)(2)(B)(iv) because the IRS disclosed taxpayer information to ICE even though ICE’s request for disclosure did not adequately set forth the “specific reason or reasons” why taxpayer address information was relevant to a criminal proceeding or criminal investigation under 8 U.S.C. § 1253(a)(1). Finally, the IRS’s August 7 disclosure to ICE violated Section 6103(i)(2)(B)(ii) because ICE’s June 27 request failed to provide “the taxable period or periods” to which its requested taxpayer information related. pages 62-63 (citations omitted).

Regarding the substance of the apparent new address sharing policy:

In sum, Plaintiffs have shown a substantial likelihood that the IRS’s implementation of the Address-Sharing Policy was both arbitrary and capricious and contrary to law. The IRS failed to acknowledge its change in policy and failed to provide a reasoned explanation for its implementation of the Address-Sharing Policy. Furthermore, in implementing the Address Sharing Policy, the IRS failed to consider significant reliance interests that were endangered by its prior policy. Finally, Plaintiffs have shown a substantial likelihood that the Address-Sharing Policy is contrary to the requirements of the Internal Revenue Code. Plaintiffs have therefore made an adequate showing of likelihood of success on the merits as to the Address-Sharing Policy to support a preliminary injunction.

If this is the face of the new IRS, it’s ugly.

The WaPo story says no decision has been made on appeal, but I’m certain it will be, given the administration’s history and the importance it assigns to generating high deportation numbers. Whether this small victory for taxpayer privacy holds is anyone’s guess.

Notes

The New Jersey Department of Revenue, by contrast, estimated that taxpayers who used the system saved $153 per return, as reported by CNET. Not materially different, given New Jersey is a comparatively high-cost state. ↩︎
The story reveals Bessent paid the full Social Security tax, which has a modest income cap, currently $176,100. Obviously, his guaranteed payments exceeded that threshold for each of the years. ↩︎
The memorandum is quite a read WRT the background of the changes in IRS data sharing practices. ↩︎

Tags IRS, OBBBA

income tax

Ignore the name, Dems and Never Trumpers

Post author By saltspeak
Post date November 26, 2025
No Comments on Ignore the name, Dems and Never Trumpers

One would think that you could give away money without worrying about branding. Apparently not.

OBBBA’s provides for Trump accounts – a $1,000 free gift for every baby born in 2025, 2025, 2027, or 2028.¹ This from Axios:

Companies, lawyers and policy types are starting to call “Trump accounts” a new name: 530A accounts.

Why it matters: It’s a way to avoid politicizing the accounts — investment vehicles for kids that proponents hope will be widely used by families, companies and philanthropies on both sides of the aisle.

530A is the name of the section of the One Big Beautiful Bill Act that established the accounts. [Wrong: It’s the section of the Internal Revenue Code.]

…

“We are working with Democrats to reassure people that this isn’t a transactional political thing,” says Matt Lira, a veteran Republican operative who led a nonpartisan lobbying effort for those accounts.

….

“For the durability of this program, there’s reason to remove politics, and think of it as something that will exist beyond this administration and to encourage folks to participate.”

There’s a rational explanation, of course. The law permits additional contributions to be made to the accounts beyond the government’s $1k gift. Parents, their employers, and others can contribute up to $5,000/year to the accounts. Financial institutions can’t earn much in the way of fees or profits on a piddly $1,000 accounts. So, they obviously want to encourage those additional contributions. The Trump name is likely to repel a large portion of the population. So, coming up with a neutral name seems like a sensible business strategy.

This can’t be popular with the big guy who slaps his name on everything from hotels, golf courses, steaks, airlines, and bottled water. A couple immediate reactions: I wonder if the Trump IRS can require use of the legal name or simply sprinkle it so thoroughly on forms and similar to make it unavoidably obvious? If I were Lira, I’d watch my back and would not be heading to the White House on behalf of lobbying clients.

Note

There are strings. The money must be deposited in a qualifying account and cannot be accessed until the child turns 18. Earnings are only tax free if they are used for qualifying purposes like education or starting a business. But it’s free money if you’re the patient type. ↩︎

Tags OBBBA

Dollars committed

IRA’s and OBBBA’s Signature spending initiatives

Net fiscal cost

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Contextual background info

Trump Sues the IRS

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They write letters (on CI)

About your retirement package

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Need to assure donors? Just ask.

Direct file ends

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MAGA mugging

ICE data sharing case decided