As 800,000 federal workers remain furloughed or working without pay in the longest government shutdown in U.S. history, we look at how the Trump administration has restarted a division of the Internal Revenue Service to help corporate lenders. The Washington Post reports that an appeal from the mortgage industry has resulted in hundreds of IRS staffers returning to the agency to carry out income verifications for lenders. This process earns the $1.3 trillion mortgage banking industry millions of dollars in fees. We speak with Paul Kiel, a reporter for ProPublica and contributor to the series “Gutting the IRS.” His recent piece for the series is titled “Who’s More Likely to Be Audited: A Person Making $20,000—or $400,000?”
AMY GOODMAN: This is Democracy Now! I’m Amy Goodman. The partial government shutdown, now the longest in U.S. history, has dragged into its 24th day, with still no apparent end in sight. As 800,000 federal workers remain furloughed or working without pay, with some unable to make rent or pay medical bills, we end today’s show looking at how the Trump administration has restarted a division of the Internal Revenue Service to help the corporate lenders, the mortgage industry.
The Washington Post reports an appeal from the mortgage industry has resulted in hundreds of paid IRS staffers returning to the agency to carry out income verifications for the mortgage industry. This process earns the $1.3 trillion mortgage banking industry millions of dollars in fees.
According to The Washington Post, the IRS workers were called back to work just one day after a trade association, representing credit reporting companies and high-level officials in the mortgage industry, lobbied top advisers to Treasury Secretary Steve Mnuchin. Robert Broeksmit, chief executive of the Mortgage Bankers Association, wrote to Mnuchin’s senior adviser, Craig Phillips, “Could you make these guys essential?”
Unlike the 420,000 workers forced to work without pay, the 400 IRS workers called back to work are being paid, using industry user fees. Marvin Friedlander, a former senior IRS official, told The Washington Post, “It seems crazy to me that a powerful bank or lobby gets to bring their people back to do their work. How about the normal slob who can’t even pay his rent?” he asked.
For more, we’re joined by Paul Kiel, reporter for ProPublica, one of the contributors to the remarkable series “Gutting the IRS: A multiyear campaign to slash the IRS budget has left it understaffed and on the defensive. That’s been good news for tax cheats, the rich, and big corporations—but not for the poor.”
Welcome to Democracy Now!, Paul.
PAUL KIEL: Thanks for having me.
AMY GOODMAN: So, first, talk about making this group of workers essential and bringing them back to serve the mortgage industry.
PAUL KIEL: Well, I mean, I think it’s important to know this is the second kind of remarkable decision the Trump administration has done to ease the pain of the shutdown. And the first was, what they originally said was that workers were coming in, and they were just going to be processing payments, to make sure that revenues come to the government, but refunds would not go out at tax time, which obviously would result in an enormous amount of pressure on Congress, when people start not getting those refunds they’re expecting to get in February. So, they made a decision that was different from all previous administrations that dealt with shutdowns, which said that, actually, we’re going to bring these workers back in tax-filing season and have them push out refunds.
And then this comes along, where the mortgage industry would like to be processing loans, and because a lot of tax transcripts are required as a way of underwriting the loans, that was stopping. And so, that’s where that pressure came to bear. And they, you know, came up with a new decision. So they’re bending rules a lot when it comes to the IRS, to change the way it’s been dealt with in the past during shutdowns.
AMY GOODMAN: So, they bring in—they make these workers not only essential, but they are paying these workers.
PAUL KIEL: Right. They found money to, I guess, make them happier workers, I guess. I don’t know.
AMY GOODMAN: And how does this benefit the mortgage industry?
PAUL KIEL: It makes sure that they can make loans, so they can make money, you know, that things don’t shut down for them, even if it’s shut down for most of the federal government.
AMY GOODMAN: And this was done at the behest of Steve Mnuchin, the treasury secretary.
PAUL KIEL: Well, his people were obviously listening to the lobbyists and made things happen.
AMY GOODMAN: So, talk about your research looking at the gutting of the IRS. But it doesn’t get gutted equally, or at least the effects of it are not equal.
PAUL KIEL: Right. So, this starts with the tea party Congress coming in after the 2010 midterms. And, you know, there’s a lot of strong anti-IRS sentiment on the right. And originally kind of the focus is, Obamacare has just been passed, and the IRS plays a crucial role in implementing Obamacare. So it’s seen as kind of a way to get at Obamacare, to attack Obamacare, by restraining the IRS budget. That leads to, you know, the reason for budget cuts. And then there’s a large scandal that erupts in 2013 regarding how the IRS is in—from the view of people on the right, started targeting right-leaning political nonprofits. This is the Lois Lerner scandal. And that leads to the justification for other massive cuts.
And so, starting in 2011 through 2018, the IRS budget is being really hacked out in some years and just kind of held down in other years. And the cumulative effect of that is a budget cut of over $2 billion, in today’s dollars, over that time. They lost a third of their enforcement staff. And, you know, taxpayer service has suffered, but that has actually been one area where, you know, constituents are angry, because they call the IRS, they can’t get an answer to questions, and so Republicans have kind of bumped funding a little bit in that area. But there’s other basic areas that are, you know, in a state where they’ve never been before.
AMY GOODMAN: So, some people might say, “Good, they shouldn’t have these kind of resources.” You know, there’s a whole movement that says, obviously, they want the IRS gutted, and then others who say government is absolutely essential. Who is more likely to get audited?
PAUL KIEL: Well, so, I think it’s important to note, so, one of our largest anti-poverty programs is the earned income tax credit. About $70 billion goes out; it goes to 27 million households. And that is run by the IRS. And since the '90s, the right, the Republicans in particular, have put a lot of pressure on the IRS to audit people who receive that benefit, that comes in the form of a tax refund each year. Over a third of the audits that the IRS does are of people who receive that credit. And that's a type of auditing that the IRS does that’s largely automated.
And so, what we were able to show in our piece is that audits of the rich, audits of corporations have come down much more quickly than audits of people who are receiving this credit. And these are people, you know, households that tend to have income under $20,000 a year. It’s a program that lifts about, you know, millions of children out of poverty every year. And the computers can still pump out those audit letters. And so, that area of auditing has fallen much less precipitously.
AMY GOODMAN: So, let me go to a graphic from your article—
PAUL KIEL: Yeah.
AMY GOODMAN: —on earned income tax credit recipients. It shows that since 2011, audit rates for the wealthy have dropped more steeply than for the earned income tax credit recipients. For example, for taxpayers earning between $200,000 and $500,000 a year, audit rates dropped by 74 percent, but for earned income tax credit recipients who have a median annual income under $20,000, audits dropped by just 36 percent.
PAUL KIEL: Right, yeah.
AMY GOODMAN: So, you’re more likely to be audited if you’re making less than $20,000 or $40,000 a year than if you make a million dollars?
PAUL KIEL: Right. So, it’s kind of what the IRS has said, as well: We were prioritizing these people at the bottom, and we were prioritizing people at the very tippy top, which is people who earned over $10 million a year. But what that means is that, you know, audits of the affluent have plummeted far more, so that there’s basically no balance anymore, where you have—you have to get up to a million dollars a year before you see the same audit rates as people at the very bottom of the income scale.
AMY GOODMAN: And so, what has happened to people at the top of the income scale?
PAUL KIEL: Well, they’re not getting audited. So, you know, that’s what happens. They don’t—
AMY GOODMAN: And corporations.
PAUL KIEL: And corporations. I mean, the large corporations of the country used to be audited every year. That’s happening less and less. So, the Microsofts, the Googles and all those, they might still be audited, but very large corporations are no longer audited everywhere they used to be.
AMY GOODMAN: And what’s going to be the effect of the government shutdown, overall, on people paying taxes this year?
PAUL KIEL: Well, that remains to be seen whether the IRS can somehow make the filing season work in a way that—and gets people’s refunds out on time. I mean, an enormous—tens of millions of people rely on these refunds being on time. Right now, they are contemplating bringing workers back, after not receiving a paycheck for five weeks, and coming in to process refunds to make sure that everyone gets their refund on time. That remains to be seen how that’s going to work out. That’s something that has never been done before.
AMY GOODMAN: And what were you most surprised by in the series you did?
PAUL KIEL: Well, I would say that some of the most basic things the IRS is not able to do because of the funding drop-off. Like one area is people who do not file any tax return at all. It’s kind of hard for the IRS to find those people and to tell them, you know, that you owe this money and to track them down and make them pay. And so they basically just stopped doing it. So, if you don’t file taxes, it’s—so they’re not opening those investigations. They’re saying, “Well, we don’t have people to do what we need to do, so let’s make sure that we’re cashing the checks people are sending in. Other things that take more resources to do, that take a lot of time, we just don’t have the people to do it, so we’re not going to do it.”
AMY GOODMAN: I want to thank you very much for being with us, Paul Kiel, reporter for ProPublica, where he covers business and the economy, a contributor to the recent series headlined “Gutting the IRS: Who Wins When a Crucial Agency Is Defunded.” The subtitle, “A multiyear campaign to slash the IRS budget has left it understaffed and on the defensive. That’s been good news for tax cheats, the rich, and big corporations—but not for the poor.”