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At the top of my anxiety list as of the 250th anniversary of the Declaration of Independence is whether we will lose our sense of common purpose, of community, of shared burden, which have made America resilient through depressions, wars, and political conflict. Down my list of worries about the ethics of Americans is tax cheating. However, I am increasingly convinced it is “the canary in the coal mine,” an early indication of an erosion of shared purpose and warning about potential ethical collapse. All the elements are now in place to allow or even encourage a wave of tax cheating. IRS staffing, which had already been reduced at the insistence of Republican legislators over the past several years, was further reduced by 30% since President Trump took office in January 2025. The arguments made by Republican lawmakers are that the IRS has selectively targeted and penalized conservative and right-wing organizations in the past. The evidence for that just does not add up, however, and a much more likely explanation is that Republicans are responding to many of their more wealthy supporters who do not want to be examined too closely by the IRS. With many fewer staff, the number of regular tax audits has been significantly reduced, particularly of those reporting substantial annual income. In addition, President Trump has made light of tax cheating by himself while being found guilty of tax cheating in state courts. Trump has also pardoned some of his friends who have been convicted of tax evasion. Tax compliance is also threatened by the drumbeat of criticism of government and federal employees in general. Every time an administration official assails their own staff as lazy and useless, they add to the feeling by some that they can push the envelope of tax avoidance into clear cases of tax cheating. The U.S. tax system has always depended on overwhelming voluntary compliance. It would be impossible to audit every tax return. We have always relied on the assumption that random audits and occasional criminal prosecutions for severe cases of tax cheating would be enough to compel compliance. Decisions about who and how many to audit have traditionally depended on calculating the cost and returns from past auditing. This logic has also guided Congressional decisions about how many staff to authorize. It is currently estimated, for example, that adding one more IRS agent today would produce 6.5 times the cost of that employee in additional tax revenue. Why, you ask, don’t we increase the number of agents until the crossover point where the returns from auditing fail to pay for the additional agents? The answer is that taxpayers get surly about being audited, and politicians have wanted to please their constituents rather than anger them. This is particularly true of more wealthy constituents who have the ear of politicians now more than ever. The accusations of selective auditing of conservative organizations, though roundly discredited, continue to be used as a justification for reducing IRS staffing. We are reaching the point where the chance you will be audited and caught is fading. Why not claim a bedroom in your home is an office if you have even the flimsiest case that it is? Why not omit income that is harder for the IRS to trace? Why not claim your dog as a dependent if you don’t think you will be audited! The result, of course, is less revenue for the federal government and the states. If you think all government is wasteful and corrupt (or “woke”), you may even believe there is something noble in tax cheating. However, the more concerning result to me is the erosion of integrity, and the loss of commitment to a shared responsibility for the many specific things government does for us, and for the American “experiment” in general. It is also true that overall tax policy can erode the public’s sense of fundamental tax fairness. One example is the exclusion of “carried interest,” the form of income earned by most private equity, venture capital, and hedge fund partners, or the exclusion of rising stock values of entrepreneurs. If you feel that the rich have created their own carve-outs to avoid taxes, why can’t you level the playing field by cheating a bit here and there! It is the belief that the rich have exempted themselves from taxes which has led to proposals to tax wealth itself, for example by the proposed California tax of 1% per year for five years of the wealth of those with more than $1 billion in assets. Or the tax on New York City second residences of taxpayers who live elsewhere. To me, these are clumsy tax strategies but the direct result of tax policy which has exempted so much of the income of the wealthy. The current acting head of the Internal Revenue Service, Frank J. Bisignano, argues that tax auditing today will not suffer because audits will be more targeted using artificial intelligence. He also argues audits of the wealthy continue as always. Restoring confidence in the tax system and thereby increasing compliance is a generational task. We can start by supporting efforts to improve the efficiency and effectiveness of government at all levels, but we have to directly address tax fairness and compliance by ending tax loopholes exploited by the wealthy, and by supporting more audits and the hiring of more IRS and other tax agents. Above all, we need leaders who are models of financial responsibility and tax compliance, not leaders who themselves push the bounds and pardon their friends who have been convicted of tax fraud.
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