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Comment by NovemberWhiskey | Hacker News Reader

The reason for this is almost entirely the Earned Income Tax Credit.

The IRS estimates 21-26% of all EITC claims are improper. The rules are quite complex, which results in more errors and it is relatively straightforward for the IRS to detect certain classes of mistake or fraud through automation (i.e. to detect if the same child was claimed as a dependent by two different people on their return).

Congress made the EITC complex. EITC errors/fraud cost the public purse $10-20bn a year. Is the IRS just supposed to ignore that?

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They ignore much larger sums. The real reason they’re targeted is that, quite simply, they’re unable to fight back. It’s the equivalent of searching for your keys under the streetlight.

> They ignore much larger sums.

Source? What category of stuff the IRS ignores adds up to more than $20 billion?

Bit of a tangent but, why $20BUSD?

>EITC errors/fraud cost the public purse $10-20bn a year

Oh that's right, my mind wandered a bit :l

$20bn is the estimated annual cost of fraudulent or otherwise improper Earned Income Tax Credits, which is the primary audit scope for low-income tax payers.

https://www.crfb.org/blogs/primer-understanding-tax-gap

The IRS estimates there's a net tax gap of $554 billion in 2019. They break it down into 5 categories with values from 2011-2013 that all are over 20 billion each: underreported income, over/misreported adjustments, underpayment, non-filing, and other underreporting. They note that their 2011-2013 estimate failed to include underreporting of offshore wealth and wealth going through pass through entities, which resulted in a tax gap of $33 billion per year to the 2011-2013 estimate and 46 billion for 2019.

Given the total collected is over 4 trillion it's not hard to imagine other categories worth far more than 20 billion.

They don't ignore much larger sums; larger sums are much harder to automate detection of. So with the limited amount of manpower they have, far fewer are identified.

They can send a letter asking for documentation for everything the automated system flags. The automated system detects "simple" cases at a far higher confidence ratio, which tends to be lower income. Once you get upper income, with all manner of complicated itemized deductions, the confidence of the automated system is much lower, and the effort to ask for appropriate documentation, and verify it, is much higher, for a much lower expectation of return (since, again, low confidence from the system).

And the rich guy probably has a CPA filing their taxes. It's quite unlikely there will be anything in there that's easily detected.

Or that is a flat-out mistake. You're right that wealthier people probably aren't going to commit obvious fraud like "forgetting" a 1099. But, assuming they are not deliberately committing fraud, their CPA will probably not make any obvious errors either.

I wouldn't be so sure about that. I just got a letter from the IRS pointing out an error in an amended return my CPA had filed, presumably with the help of software. They tallied total taxable income to a nonzero amount, but then put a zero for the tax due on that amount. I missed it on my own review because it was one of many returns I had to file.

Hence probably. I have no doubt CPAs like every professional including developers make mistakes. Although I assume they're probably mostly obvious one which can be corrected fairly easily. I'm also sure there are outliers.

>I missed it on my own review because it was one of many returns I had to file.

Honestly, I look through my returns but they're way past the point where I could find most errors even though my finances aren't especially complex.

This is addressed in the article:

> A critical limitation in the IRS’s ability to audit millionaires is the availability of IRS revenue agents. Only this class of auditors, given sufficient training and experience, are qualified to examine complex tax returns – the types of returns typically filed by high-income individuals and large-scale businesses.

> With severe budget constraints, IRS has tended to trade off the replacement of revenue agents with hiring more tax examiners. These certainly are paid less, but they are also less knowledgeable. While revenue agents used to outnumber tax examiners, this has slowly shifted over time.

I'd be interesting to see how the ratio of revenue agents to tax examiners would shift if the IRS would get a portion of discovered tax fraud back into their budget.

There's no way that's a good idea. See police departments + (civil asset forfeiture and small town speed traps)

Looked into this years ago in a semi-related discussion: https://news.ycombinator.com/item?id=21874358

https://www.finance.senate.gov/ranking-members-news/irs-budg...

> IRS Research Division estimates in the 2003 GAO report, however, placed returns for activities such as tax enforcement at more than ten – and in some cases more than 20 – dollars collected for every dollar spent. Phone calls to follow up on tax debts owed were estimated to return 13 dollars for every dollar spent. Audits by mail returned as much as 11 dollars for every dollar spent. Using the overall rate of a four to one return, this year’s $100 million budget cut translates to a $400 million loss.

Imagine 20 dollars per dollar spent, that's the type of unicorn investment that basically every VC hunts for.

> Imagine 20 dollars per dollar spent, that's the type of unicorn investment that basically every VC hunts for.

It's frustrating that every business person who has ever lived would absolutely throw money at that formula if it was part of their business, but that's not politically popular because the IRS costs money to operate.

Mathemarically it makes sense to go until you hit 1:1. If we increased enforcement until, say, 4 dollars collected for every 1 spent in each of the major categories, the deterrent factor would probably help people be more honest in times of dishonesty, naturally helping the problem for the following year.

>Mathemarically it makes sense to go until you hit 1:1

Maybe mathematically. But realize that the targets of the audits are probably bearing at least as much of the cost burden of the audit as the IRS whether they did anything wrong or not. And you'll almost certainly cost a lot of people who made honest mistakes a lot of money.

So, no, it's not at all clear that the IRC should be revenue-maximizing.

> Mathemarically it makes sense to go until you hit 1:1.

Nah, until we get better returns on other endeavors for the same dollar.

If they become more efficient because they get a larger budget, that would very publicly contradict a lot of campaign messaging.

We can go a step further and let the individual auditors get a commission too. Revenue will sky rocket and surely this will attract the best, brightest and most ethical. Conflicts of interest be damned.

> they ignore much larger sums

Not really [1]. When you make more than $500k, your audit rate doubles from the national average of 0.25%. It doubles again at $1mm and more than doubles once more at $5mm.

EITC-only returns are audited around the frequency (0.77%) of someone making $500k to $1mm. I'm not sure why $1 to 25k is audited at the same frequency as $500k to $1mm. But given "from fiscal years 2010 to 2021, the majority of the additional taxes IRS recommended from audits came from taxpayers with incomes below $200,000" and that "EITC audits are primarily pre-refund audits and are conducted through correspondence," it seems--very roughly--closer to the optimum than the headline suggests.

[1] https://www.gao.gov/products/gao-22-104960

It's important to remember that an "EITC correction" != "audit", despite the parent assuming all audits are equal.

Correcting a simple error might never even involve a human IRS auditor. It's as simple as an automated letter going out and instructing someone to correct an obvious mistake (this happened to me).

Never spoke to anyone - just submitted the correction. There should be no limit to audits that are nearly-automated, regardless of whom they target.

Audits that require an investigator are far more effort and those investigative resources need to be proportioned by the expected return on investment. ...and while that will likely tend more frequently to the rich, it shouldn't necessarily be so.

https://www.taxaudit.com/irs-letters/irs-letter-cp75a-sample...

This is what a typical audit of EITC looks like. It is literally "send us some forms and some proof like a birth certificate showing you're the parent of the child you're claiming".

If it's so automated, why require people to submit tax returns at all? Just calculate everything and send them the breakdown along with the check.

Lobbying. https://www.propublica.org/article/filing-taxes-could-be-fre...

This is obviously wrong. The reason is that they need people to affirm ALL sources of income, not just their W2.

If this is obviously wrong, then how and why does it work in most countries other than US? Most people don't have sources of income other than employment (or other sources that are similarly transparent to the tax authorities already). Most tax systems, accordingly, are structured around that, and only those who have unusual income sources have to submit documentation about them.

no, the searching for the keys under the streetlight joke is funny because you will never find the keys under the streetlight no matter how nice it might be to search for them with a good light source, whereas you will be able to relatively easy find small sums of money and make people it from the poor families under discussion here.

> you will never find the keys under the streetlight

That is a strong statement! It is not true, some times that is where they are.

Actually if it is the only place you could find them (the rest of the street is too dark, you do not have a torch to see or fingers to feel....) it is an optimal, albeit dismal, strategy

Loving digression.....

evidently you used the phrase without familiarity with its origin?

https://en.wikipedia.org/wiki/Streetlight_effect

>A policeman sees a drunk man searching for something under a streetlight and asks what the drunk has lost. He says he lost his keys and they both look under the streetlight together. After a few minutes the policeman asks if he is sure he lost them here, and the drunk replies, no, and that he lost them in the park. The policeman asks why he is searching here, and the drunk replies, "this is where the light is".

Hence, the drunk and the policeman are never going to find the keys under the streetlamp because they were lost in the park.

No; it's simpler than that. Tax fraud doesn't distribute by income; it distributes by nature of income, and the ease with which that income is validated.

Some really large proportion of Americans are basically W-2 filers taking the standard deduction. These Americans have no opportunity to evade taxes.

Most income tax fraud probably takes place in the area of passthrough businesses and other areas where tax verification isn't simply a problem of reconciling what employer A (or brokerage B, for dividends and stock sales, or bank C, for interest) said they paid to person P with what person P reported on their return.

TL;DR - it's hard to execute a fraud when the IRS already has the corresponding 1099s on-file for you.

This will probably change with the 1099k requirement dropping to $600 nationwide. Or it'll further overwhelm the IRS.

> These Americans have no opportunity to evade taxes.

I think there’s a lot of opportunity related to kids. Deductions and credits vary and can be mistakenly or willfully claimed.

> The real reason they’re targeted is that, quite simply, they’re unable to fight back.

I think there is a misunderstanding of what an 'audit' means. It can be as simple as a letter from the IRS (after their analysis alerts them) asking that certain documents be provided to support a deduction or otherwise. The IRS is not conducting large scale audits on people with low incomes it would not be feasible there is not enough to even dig into.

What the government (in this particular case for the EITC) should be easy for the taxpayer to reply with info needed to dispute the claim.

I got a tax bill for more than a hundred thousand dollars when I sold my primary residence a few years ago. No taxes were actually owed due to the primary residence carve out for capital gains. The sale had been reported to the IRS by a couple different entities (realtor and title company, IIRC) with a few dollar discrepancy, so the transaction was not merged, even though they for the same address (and single family home). I wrote the IRS a nice letter and they eventually replied that they were closing the case. Sometimes "unpaid" taxes are due to limitations of the IRS, which has historically had very legacy software (not sure if that has been fixed recently).

If it's that complicated and they are doing audits anyways, can't they just automatically apply EITC without relying on people to figure out this stuff and how to claim it?

No because tax prep companies have lobbied our legislators to make that illegal

(and many would politically be against the data collection that would be logically necessary to determine many of the common credits/deductions)

The second thing could be easy to deal with though, just make data sharing be a consent based process.

You can opt in to auto-filing by allowing data sharing with the IRS. People who appreciate the convenience can opt in and those who don't can just not (instead manually providing the requisite documents/proofs/numbers just like today).

Not infrequently, the data involves third party cooperation, so it's not really that simple.

They already have the data to auto-prepare most tax returns. That would be very bad news for the tax prep companies, though.

There also is the problem that if they auto-prepare returns they're telling the taxpayer exactly what they know and thus how the taxpayer can cheat with a low probability of detection.

I don't think that's an adequate reason against automating it, though. What I would like to see is say March 1 they mail out pre-filled tax forms, except every line has an extra box on it that's empty. If you think it's right you simply sign and return it with payment if needed. If you have minor disagreements with it (for example, it's unlikely they'll know everything for schedule A) you can fill in the extra boxes with the correct values. You may then either propagate those numbers through and pay the adjusted amount, or you can ignore this part, they update the return with your new numbers and send you a bill. Lastly you can bin it and do it yourself from scratch.

Yes, that's a very reasonable proposal that I would personally be in favor of.

Although, the consequences of the "default" values are something that both sides of the aisle are almost certain to take issue with. The left will likely not be happy that the default values result in "overcharging" those due social credits, and the right will not be happy that the default values make it easy to get away with failing to report income that isn't 1099/W2. This would likely result in arguments over how to solve that problem ... this is the data collection issue I'm referring to.

See https://www.irs.gov/individuals/get-transcript to get the IRS to show you what they have on your account.

We do this every year to double check that we haven’t missed anything. It’s usually incomplete on April 15, but tends to be pretty complete by mid-summer (and 4868 gives you an automatic extension of time to file [but not to pay])

There’s no secrecy need at play here.

No, because a question like "which of these non-cohabiting parents is factually speaking the one that's actually raising the child" is not something you can automatically discover.

The EITC is actually a social welfare measure masquerading as a tax policy, and subject to all the problems that implies.

It is automated just after the fact. It’s very easy to validate if 1 dependent is claimed by 2 people and then send an automated letter.

The reason is they can “audit” the EITC by sending some letters and doing some very simple validation. Auditing millionares is much harder to automate.

So even if they spend very little time or money on dealing with the EITC they end up doing a lot more audits.

There's a very easy way to make a revenue-neutral simplification to tax codes. Every refund, subsidy, credit, or whatever is universal without regard to income of the recipient. They are all taxable, and the progressive nature of the income tax ensures that the people to whom the benefit was targeted get the most benefit and the wealthy people who need it the least get the least net benefits. This solves a huge number of problems: tax code too complex, weird incentives near the edges of income phaseouts (i.e. rent subsidy recipients who are disincentivized to earn more), gets rid of massive bureaucracies dedicated to checking eligibility, etc.

Exactly. It's easier to catch when things are automated. People of lessor means generally have simple tax returns. However, good luck catching a rich persons 1031 Exchange or an improper 83(b) Election. Those just don't scale.

> reason for this is almost entirely the Earned Income Tax Credit

"As a lower bound, about half of the spike [in operational audit selection rate on the lower end of the income spectrum apparent in 2014] is explained by EITC-eligibility-related projects" [1].

[1] https://dl.acm.org/doi/fullHtml/10.1145/3531146.3533204

This does not sound right at all. A lot of "automated" checks by the IRS that result in a return being corrected (such as more money being owed, for example, because of an automated check that found a mistake, such as someone forgetting to report 1099 income), the IRS simply sends a letter indicating the correction, the reason for it, and any balance due. It's not "audit" when they do these automated checks.

The IRS sends out notices of correction when it knows what the answer is (like, you typed this number in wrong from your W-2) but most of the EITC problems are apparent problems of fact (is this your child? does this child live with you?) rather than this kind.

It's on Congress to fix the EITC, too. There are already detailed proposals to reform it [1], but nothing will change unless Congress has the will to do it.

[1] https://www.taxpayeradvocate.irs.gov/wp-content/uploads/2020...

It looks more like a self-created problem. The tax code is unnecessarily complex and this creates confusion for most citizens, including the IRS itself.

Simplifying the tax code would solve a lot of these headaches plus remove the EITC errors/fraud cost of $10bn-20bn a year.

A simple and reasonable one-liner tax code can be something like: "all businesses and citizens pay 10% of their monthly revenue to fund a small efficient government and social institutions (education, health, firefighters, police, etc)."

We should have an electronic filing system: if someone else filed claiming a dependent the next person to try to gets an error message and can resolve it amicably instead of hiring manual auditors to deal with an error/crime that shouldn't even be able to exist.

We do have an electronic filing system, and it does throw errors for some filing issues.

The US has >0 people who do not use computers, though, so a manual intervention process is necessary.

Probably because they don't have the accountants to cover up and cook the books like the 1%, I don't think it's because of "criminal tendencies" of that income bracket like some would claim.

>Congress made the EITC complex. EITC errors/fraud cost the public purse $10-20bn a year. Is the IRS just supposed to ignore that?

I love the advanced level of neoliberalism we're seeing now. Oh no, poor people aren't committing tax fraud properly, gotta run after them. Meanwhile pretty much every US corporation abuses tax laws to the absolute limit to serve their shareholders (on the order of trillions of dollars of lost revenue), and somehow that's "okay" (i.e. the IRS doesn't audit them and the justice dept doesn't go after them)

> the IRS doesn't audit [U.S. corporations]

Corporate auditing is down, but with audit rates at 50% for $20+ billion in assets and 22% for $5 to 20bn [1], corporate America is the most thoroughly tax audited slice of the country.

> the justice dept doesn't go after them

Yes, it does [2].

[1] https://www.washingtonpost.com/business/2021/07/14/corporate...

[2] https://www.justice.gov/tax/tax-division-press-releases

> Is the IRS just supposed to ignore that?

Yes.

Or, better yet, just give it to everyone and pay for it by:

1. Eliminating the carried interest tax credit, which has somehow survived 15+ years. It is quite literally a giveaway to hedge fund managers who get to pay lower taxes on managements because reasons. It most recently survived by being removed from the Inflation Reduction Act at the behest of Senator Kirsten Senema (D-AZ);

2. Treat any borrowing in the US the same as repatriating foreign profits if there are any. Effectively you want to stop companies keeping profits offshore (to avoid tax) yet fund US operations with debt;

3. Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes;

4. Tax stocks on market value every year just like we do with property.

Excessive audits of poor people with a deliberately complex system is punitive by design. Spending time and effort (and money) auditing the taxes of poor people is ridiculous.

Enforcement of a program like the EITC is a cost you do not have to pay. It is a waste of resources.

In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000.

>Or, better yet, just give it to everyone and pay for it by

The IRS doesn't author tax policy. Congress is over there --->

Sure, but as the article states, the IRS is already ignoring entire categories of tax fraud that is illegal under the law. This means the clearly have discretion over what to pursue. They could choose not to pursue EITC fraud at all.

Would it be rational to audit (say) one additional millionaire rather than correcting objectively massive fraud/error rates in the EITC? I would say not. Then the question remains is what the break-even point is. Neither you nor I know the internal numbers here so it's impossible to discuss whether the current policy is reasonable or not.

> In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000.

Why would anyone who made under $50,000 or $100,000 ever bother to pay one cent of taxes if you did that?

For one, the vast majority of those people are W2 employees. Their taxes are withheld at source. Let that be whatever taxes someone pays.

Take it further: the IRS just gives you a form at the end of the year saying your income was $X and your taxes withheld were $Y. Sign here to get a refund or pay the shortfall (which, if withheld correctly, there should never be a shortfall).

That's actually how it works in most developed countries.

As for small businesses (the vast majroity of non-W2 employees), sure, audit them if they have been running a restaurant for years and weirdly have never drawn an income.

No. The withholding system isn't accurate enough to do this and can be gamed anyway. (I'm thinking back probably 20 years ago, one of our employees absolutely furious with the accountant for messing up their taxes and leaving them with a huge bill they couldn't afford. Reality: They bought a house, everyone knows your taxes go down when you buy a house so they increased their exemptions. Oops, the tax effects of buying a house weren't anything like what they thought.)

Furthermore, the system doesn't work too well with variable incomes (it's based per-check) and should two married people both have variable incomes it can't work, period. (We are both self-employed--and some years ago I threw in the towel on even trying to get it right. I simply stay at the safe harbor limit. Come Apr 15 I expect to be off by 4-digit amounts, but it could be in either direction.)

And your threshold won't catch most cheating. Not drawing an income will of course be suspect, but the guy who reports $50k but took $30k in cash out of the till over the year won't show up on your radar. I actually get a 1099 but my wife does not--no computer can know if she's reporting accurately. They would have to do a bit to even realize she's working (she's past retirement age.)

>For one, the vast majority of those people are W2 employees.

... how long do you think it would take for everyone of those W2 employees to be filing for the Foreign Tax Credit every year if it were illegal to audit them?

This is certainly the hottest possible hot take.

> Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes;

This works for billionaires but harms regular people. If you applied capital gains tax to grandpa's modest gift to his grandchildren the grand children may very well end up with nearly nothing. In many states property taxes are reassessed upon property transfer in a will, so if your grandparents/parents had a really good property tax rate, you may end up paying so much tax that you can't afford to keep the house.

There are already enough ways to rob the middle class. No thank you.

> Tax stocks on market value every year just like we do with property.

This isn't done because the universe of ways you can move, adjust, hedge, and sell stock is too broad. Again, this inadvertently damages the middle class who by-and-large are passive investors. I already pay enough tax, thank you.

> Excessive audits of poor people with a deliberately complex system is punitive by design. Spending time and effort (and money) auditing the taxes of poor people is ridiculous.

If you look at the problem from the perspective of a relatively understaffed organization it is far easier to automate the common errors less well off people make. Having been on the receiving end of this majority of the audits are a simple letter saying "you screwed up, you actually owe this much" and nothing more. Auditing the ultra-wealthy takes an actual dedicated team to do because the ways that these people illegally hide money are complex and ever-changing. This is why nothing we have done to repatriate USD, or "tax the billionaires" has worked since the dawn of the country.

It honestly sounds like your statement here is actually a thin veil over just letting anyone making under $N exploit the system at (once again) the cost of the middle class. Moreover, the title of OP is deliberately inflammatory. The audit rate below 100k is extremely low. The delta can be explained by the difficulty involved.

> Enforcement of a program like the EITC is a cost you do not have to pay. It is a waste of resources.

It is possible to commit extremely complex fraud with the EITC. I pay so much tax as a software engineer I'd like to see other people get pounded by the IRS too regardless of how much more or less than me they make.

> In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000.

lol.

> I pay so much tax as a software engineer I'd like to see other people get pounded by the IRS

This sounds like a Chuck Tingle commission waiting to happen

> If you applied capital gains tax to grandpa's modest gift to his grandchildren the grand children may very well end up with nearly nothing.

That's such a funny remark. First, this implies the tax rate is 100%. How else could you end up with nothing? Long term capital gains is what? 20%? If the "modest gift" of a $1 million house with a cost basis of $300,000 results in $140,000 in capital gains taxes, you still have $860,000.

Hell, you can even have the system defer those taxes until the sale of the property (eg capped at 10 years) if you're worried about undue hardship.

But the house has its cost basis reset to $1 million, which in insane. In some places, you even get to inherit the ridiculously low property tax rate, which was another result of homeowners voting themselves massive tax breaks.

Second, these completely made up emotional anecdotes about regular people are so often used to defend practices whereby billionaires get to pay nothing. It's an appeal to emotion and a complete distraction. I don't know if you're just an unwitting victim of this propaganda (which it is) or you're one of the many bad faith pundits who use this appeal for the real goal: protecting the wealth of rich people.

> This isn't done because the universe of ways you can move, adjust, hedge, and sell stock is too broad.

It's a remarkably easy problem to solve. Just tax 1-3% of the net value of your assets based on their value on December 31 of each year.

> It honestly sounds like your statement here is actually a thin veil over just letting anyone making under $N exploit the system at (once again) the cost of the middle class.

The idea of a middle class here itself is a myth and deliberate propaganda by the wealthy to pit the imaginary middle class against the imaginary lower class. There are only really two classes: those who trade their labor for an income and those who own capital. This idea of "defending the middle class" is 100% propaganda.

You, as a software engineer, are in the same class as a neurosurgeon, a profesional basketball player, a waiter, a nurse or a teacher. I hope you realize that someday.

What I would like to see done about this case is the person who inherits the house (and I would apply this to any asset that either can't be subdivided or will be harmed by being subdivided) can choose to get that $1M house with a $300k basis and a IRS lien on it for 14% (140k tax vs 1M of value) of it's value. The lien is not triggered by inheritance or by the sale of a share of the property to someone else who also has a share that has the same lien. The lien is triggered by any other transfer. Should a property become subject to multiple such liens only the largest is active, but all apply for purposes of who you can sell to without triggering the lien.

Fundamentally, this allows passing of property and family businesses without inheritance tax, but the IRS collects in the end if it ceases to be held within the family. (The sales without triggering are about one recipient buying out somebody else's share.) This should cover basically all cases where the inheritance tax is unfair, the threshold for inheritance tax on things not covered by this can be lowered.

> It's a remarkably easy problem to solve. Just tax 1-3% of the net value of your assets based on their value on December 31 of each year.

Easily avoided by liquidating assets on Dec 30 and rebuying on Jan 1 (or Jan 30 to avoid wash sale if needed)

It would also have a nasty side effect, there would be many sellers and few buyers on Dec 30, so the market would crash every single year at EoY.

> Easily avoided by liquidating assets on Dec 30 ...

This creates a taxable event. If people want to realize gains at a much higher tax rate I'm fine with that.

> If you applied capital gains tax to grandpa's modest gift to his grandchildren the grand children may very well end up with nearly nothing.

Quiz time:

Capital gains is 0% for anything less than $40k, 20% for anything over than $400k, and 15% for everything in the middle. How much do you have to inherit for the total effective tax rate to be greater than 95%?

> In many states property taxes are reassessed upon property transfer in a will, so if your grandparents/parents had a really good property tax rate, you may end up paying so much tax that you can't afford to keep the house.

In most states, property taxes are reassessed frequently (once every low single digit years). The only state where property taxes aren't regularly reassessed appears to be California. And I'm highly unsympathetic when the argument boils down to "we bought this property 50 years ago and we couldn't afford taxes on it if it were assessed at market value."

I pretty much agree but want to add some clarifications.

> The only state where property taxes aren't regularly reassessed appears to be California.

Technically, property taxes are reassessed in California but because of Prop 13, passed in the 1970s, the increase cannot exceed 2% per year. With in inflation in the 70s and 80s, this was a massive boon to incumbent homeowners and their descendants (since that favorable tax rate can be inherited).

California is the poster child for this taxpayer-led cash grab but it's not the only one. New York for example has a very complicated property tax system with various caps that amount to much the same thing but nowhere near as extreme.

> ... highly unsympathetic when the argument boils down to "we bought this property 50 years ago and we couldn't afford taxes on it if it were assessed at market value."

It's actually worse than that. It's always couched in terms of kicking seniors out of their life long homes because they're on a fixed income even though the major beneficiaries are Disney and extremely wealthy people. Worse, property held in LLCs allow you to retain favorable tax treatment even when the LLC changes hands.

Disney has to be singled out here because the're still paying 1960s taxes on their land in Anaheim.

Back to seniors, it's such a ridiculous argument. For one, you can always treat different taxpayers differently and, for example, freeze propert taxes for seniors until they die. You don't need to give a massive tax benefit to Disney to do that.

Interestingly, a state like Texas handles this way better. Property taxes are deferred for seniors until they die. They're still accuring property tax debt but it doesn't hit their immediate incomes.

This gives people a choice: stay in their family home and pay taxes when the houses are inherited or downsize to save on taxes.

This has the added benefit of freeing up housing stock.

> This gives people a choice: stay in their family home and pay taxes when the houses are inherited or downsize to save on taxes.

This sounds like an end-around to the word "theft" to me. This is stealing property. There is no other word for it.

> This has the added benefit of freeing up housing stock.

Theft is theft no matter how you call you it.

> I pay so much tax as a software engineer

Over a decade ago I was complaining to my tax CPA. He replied, "No income, no income tax." I quit that week.

>In fact, auditing anyone who makes less than $50,000 a year should be illegal. Maybe even $100,000.

So everyone files below 100k and everyone is immune to audit.

I might go for that, but I am also receptive to the abolition of taxes.

Abolition of INCOME taxes. Consumption/use taxes locally and tariff/import taxes federally seem reasonable today and 250 years ago.

Income tax takes my work effort like slavery.

> 2. Treat any borrowing in the US the same as repatriating foreign profits if there are any. Effectively you want to stop companies keeping profits offshore (to avoid tax) yet fund US operations with debt;

I think you need to update your screed for the Trump era tax changes. There's no longer a tax on repatriated earnings (they're exempted from corporate income), and the previous funds held offshore were taxed as a one-time charge (optionally payable over 8 years). There's no longer a US tax reason to keep your offshore profits offshore.

> 3. Have inheritance trigger a taxable event. This includes, by extension, allowing heirs to inherit stocks and property on a stepped up basis for CGT purposes;

Inheritance isn't a taxable event, but death is. The step-up in basis corresponds to being subject to the estate tax. When the estate tax expired, estates weren't subject to tax, but there was no step-up in basis; it was made retroactively optional to subject the estate to the estate tax and get a step-up in basis. Certainly, the federal estate tax has a pretty large deduction, but just because the effective tax rate for a lot of estates is zero, doesn't make it not a taxable event. Of course, raising the estate tax comes with a lot of bad PR about people's family farms and what not; any honest attempt to increase estate taxes needs to address that, perhaps with an installment plan/lien for illiquid property -- if you can pay the taxes on the proverbial family farm over 10-30 years or when the property is sold, that might be more palletable

> 4. Tax stocks on market value every year just like we do with property.

The US government doesn't run a property tax. Maybe you want mark to market income taxation on stocks? That's possible, but you'd need to make capital losses refundable or at least add carry-back, or people who were invested into a crash are going to be pretty grumpy. Paying taxes on unrealized gains as of Dec 31 in April when the market is in the toliet isn't palatable either.

> There's no longer a tax on repatriated earnings (they're exempted from corporate income)

Yes and no. What you're saying is partially correct. For pre-TCJA deferred foreign income there was tax holiday (ie a one-time low rate), just as there was in 2004. This tax could be paid over 8 years as well (eg Apple is doing this).

For future income, repatriation is technically exempted from income but there is a minimum tax on income in tax havens that probably incentivizes companies in future to shift profits overseas. The more money you do this with the lower the effective tax rate you pay, as I understand it.

So, you will still have an incentive against repatriation because it reduces the effectiveness of your overall profit shifting.

So borrowing in the US to avoid repatriation is still relevant but less so thanks to both the lower corporate tax rate of 21%, the tax-hoiday rate still being higher than the cost of borrowing and repatriation still increasing overall tax rate. This is less relevant currently with higher interest rates, of course.

> ... if you can pay the taxes on the proverbial family farm over 10-30 years or when the property is sold, that might be more palletable

I'm all for carving out palatable exceptions such as deferring tax liabiilities for seniors, not hitting heirs with an immediate tax bill and effectively amortizing tax liabilities over many years in the case of farms. Fine.

What I am against is giving massive tax breaks to the likes of Disney and truly wealthy California landholders because of seniors or family farms. You can separate these issues.

> ... capital losses refundable or at least add carry-back

Capital losses (both long and short term) can already be carried forward. What you're suggesting by a carry-back I assume means to apply a loss against a paper profit in a previous year. Fine with me.

> ... people who were invested into a crash are going to be pretty grumpy

We've already had this kind of problem with the AMT. I honestly don't know the current state of the AMT but in previous years (eg during the dot-com bust) we had paper who through exercising options and paying a lot of tax because of AMT then having no way to resolve that when the stock crashed. I'm fine with making sure this doesn't happen either.

> Paying taxes on unrealized gains as of Dec 31 in April when the market is in the toliet isn't palatable either.

I get this. We have numerous examples of deferring tax liabilities (eg until death, due to hardship) so this seems like an eminently solvable problem.

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