Sunday, October 18, 2020

Taxed because it is easier and cheaper

 Humphreys county in Mississippi has an unemployment rate double the national level. The local economy was already in a shambles when the coronavirus hit. But the pandemic has made things worse. Yet the county’s residents have been targeted by the IRS for claiming a tax credit that aims to lift working parents out of poverty.

Joe Jackson, the mayor of Belzoni, said, “Most people around here are kind of adjusted to the idea that the rich get richer and the poor get poorer. That’s not surprising to people in our area.” 

The Internal Revenue Service audits Humphreys county taxpayers at a higher rate than anywhere else in America that's about 12 out of 1,000 tax returns are audited each year in the county. That’s 53% higher than the national average and raises the question of why such a place is the subject of such IRS attention. Why not the haunts of millionaires and billionaires, like Manhattan?

The IRS audits about 300,000 taxpayers who claim the earned income tax credit, or EITC, each year. These taxpayers are targeted more often than high-income and high-wealth taxpayers because the audits of EITC claimants are easier to do, according to a 2019 letter written by the IRS Commissioner. The IRS’s policy has resulted in higher rates of tax audits in poor communities of color than the rest of the country. Eight of the most heavily audited counties in the country are in Mississippi. In Humphreys county, 76% of the 8,000 residents are Black.

The IRS audits most EITC claimants by mail, but wealthy taxpayers are typically audited in person and the audits require more training. In the 2019 fiscal year, about 80% of individual taxpayer audits were done by mail. But 52% of the $6.9bn recovered from these tax audits came from audits done in person, which are typically performed on wealthier taxpayers. 

The IRS commissioner, Charles Rettig, wrote that the IRS needs more money to hire and train auditors in order to balance the number of audits across all income levels. Between 2010 and 2017, the IRS budget was cut by about $2bn. The budget cuts shifted the focus of IRS audits from high-income taxpayers to low- and middle-income EITC claimants.

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