In the 2000s, the IRS uncovered a widespread pattern of tax avoidance among the ultra-wealthy, more ubiquitous and intractable than anything it had ever imagined. Something had to be done.
But the discovery alone wasn’t enough to bring down the hammer of justice. And the reasons why tell us a lot about what kind of power we need to build to take on the rich.
The IRS wanted to go after these ultra-wealthy tax cheats, write Jesse Eisinger and Paul Kiel write in a new report in ProPublica, but the agency was badly outmatched. Billionaires had already spent decades developing complex, under-the-radar evasion schemes, and had formidable teams of lawyers and accountants on hand. Those teams were often better-paid and more knowledgeable than the IRS staff themselves.
The only solution, according to the IRS, was to develop an elite division that could slug it out with the ultra-wealthy. Thus in 2009, the Global High Wealth Industry Group was born.
The special team was the IRS “equivalent of its SEAL Team 6,” Eisinger and Kiel write. It was well-resourced by federal government standards, and staffed by the field’s best and brightest. Its purpose was to conduct “audits from hell” and put a stop to elite tax fraud once and for all.
“From the minute it went live,” a top IRS official told Eisinger and Kiel, “it was dead on arrival.”
Spooked by the program’s auspicious launch, the wealthy marshaled their forces. They sicced their contacts in the American Bar Association on the agency and paid lobbyists to lean on Congress to cut its budget. Both strategies worked.
The team was supposed to add 242 expert auditors by 2012. By 2014, in the middle of Obama’s second term, it had only ninety-six. The number of millionaires audited by the team was halved within a few short years. Its investigations narrowed in scope, and it started reeling in fewer and smaller fish. Today, the group still exists, but it is starved for resources and rudderless.
In their postmortems, we might expect well-meaning bureaucrats to blame their own operation. Perhaps they were thin on talent. Perhaps they should’ve hired better, and perhaps those hires should’ve worked longer hours. Perhaps they should’ve sweet-talked more Republican congressmen or made a greater effort to curry favor with the corporate lawyers, whose allegiances to the wealthy became immediately clear during the unit’s roll-out.
But this autopsy would be wrong. The flaw in the plan was one of design, not execution.
The IRS believed it could assemble a handpicked group of experts, selectively culled from the nation’s best universities and top tax law firms, to take on the corporate elite. They proceeded from a liberal-technocratic view of politics, in which the primary struggle is between a small minority of capitalists and a small minority of highly skilled bureaucratic reformers.
The old saying on the Left is that they have the money, but we have the people. The calculus is sound. A wealthy minority will always beat a less wealthy minority. What’s needed to defeat them is a majority. Until millions of ordinary people decide to fight back against the rich, the rich will face no adversary that they can’t simply pay to beat.
The Global High Wealth Industry Group’s records are mostly private, but ProPublica unearthed documents that give a window into one specific case: that of Georg Schaeffler, a German-American auto-parts tycoon, who had bilked the US government out of billions of dollars in the aftermath of the financial crisis.
The special team determined early on that Schaeffler owed $1.2 billion in back taxes and penalties. They went after him hard. But Schaeffler and his top-dollar mercenaries fought back even harder, and with access to Schaeffler’s personal fortune, they were able to hold out longer.
After “years of grinding bureaucratic combat,” the IRS settled for mere millions. Schaeffler is worth $13 billion today. He lives quietly a Dallas mansion, unharassed by the government he defrauded or the scores of working-class people who could have benefited from the public programs funded by his tax dollars.
We can imagine a weary IRS auditor packing up his desk, shaking his head like Jack Nicholson’s assistant in Chinatown, the 1974 classic film: “Forget it Jake, it’s Chinatown.” The game is rigged; there’s not much we can do about it.
But that lesson is only half right. Yes, the forces are bigger than a single specialist could ever hope to overcome, no matter how competent. But the forces are not insurmountable. Defeating them requires politics on the ground, driven by movements of millions instead of elite units of hundreds.
The struggle between classes is the only conceivable fight between equals, the only showdown in which capitalists aren’t guaranteed a victory, the only scenario in which the wealthy’s opponents can credibly be considered up to the task. Expertise is vital to this struggle. But without popular power, it won’t be enough.