The IRS makes one fix: The agency says it will make Free File more accessible. After ProPublica reported that tax preparation software firms steered customers to pay to file taxes even when they could file for free, the IRS has amended its 20-year-old agreement with the industry. Private companies now must make their free products visible in online searches. And the IRS may now create its own product to compete with private tax prep firms, though the IRS currently has no plans to do so. Said IRS Commissioner Charles Rettig: “The improved process will make Free File stronger and give taxpayers another reason to consider this valuable software option.”
But it hasn’t made another: Syndicated conservation easement abuse continues. ProPublica reports on a weak IRS effort to stop abusive easements. Promoters buy land, get appraisals in excess of the purchase price, then sell stakes to wealthy investors who claim tax deductions worth far more than their investment. The IRS has been trying to curb the practice since 2016, but promoters simply include infrequent audits and penalties as a cost of doing business. Steven Miller, former head of tax-exempt organization enforcement at the IRS, said, “[I]t isn’t like the old days. I’m worried people aren’t afraid of the cop on the beat any more.” The abuse costs Treasury billions of dollars.
Some Democrats are bucking the tax credit trend. TPC’s Janet Holtzblatt explains that Democratic presidential candidates Bernie Sanders and Elizabeth Warren are bucking recent trends by proposing new spending programs rather than tax credits for health care, college, and child care. Janet argues that spending programs make the most policy sense but may not fly in Congress.
Google officially ends its Double Irish. In the wake of new tax laws in the US and Europe, Google has changed its global tax structure and will move more intellectual property to the United States. That ends its “double Irish” tax planning strategy, where Google’s Netherlands subsidiary shifted royalty income to Bermuda, which has no corporate income tax. The move comes after Ireland, under pressure from the European Union, phased out the arrangement.
Should the US tax system be used to reduce wealth inequality? Join TPC on January 16 at a conference featuring Jason Furman, former chairman of the Council of Economic Advisers in the Obama administration, and panels of experts. They will discuss wealth inequality, whether reducing after-tax wealth would affect the political power of the wealthy and public policy, and whether the tax code is an optimal tool to reduce inequality. Register for the event here.
Bill Gates thinks it should: He wants higher taxes on the rich. The Microsoft founder and philanthropist endorses “taxing large fortunes that have been held for a long time (say, ten years or more).” He’s also in favor of a higher capital gains tax rate, perhaps to the level of the ordinary income tax, higher estate taxes, and state income taxes.
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- © Urban Institute, Brookings Institution, and individual authors, 2016.