The IRS recently announced a significant development in the realm of tax compliance: over $1 billion has been collected from high-wealth individuals and corporations who previously evaded their tax obligations.
Specifically, they focused on just 1,200 individuals whose incomes were more than $1 million per year and who each owed the IRS more than $250,000 in recognized tax debt. And they are looking at tens of thousands of more evaders in the next several months.
This accomplishment comes on the heels of an $8 billion investment from the Biden Inflation Reduction Act that directed the IRS to update systems and address the decades of severe understaffing, underscoring a critical point — when properly resourced and empowered, tax authorities can reclaim substantial public revenue. However, this also highlights a glaring issue at home: Connecticut’s Department of Revenue Services (DRS) remains severely understaffed and underfunded, allowing wealthy individuals and corporations to continue evading state taxes and depriving our state of vital resources.
The IRS’s success story should serve as a wake-up call to Connecticut legislators on both sides of the aisle. It shows that with sufficient investment in personnel and technology, we can enforce tax laws — laws that have already been agreed upon and passed — more effectively and ensure that everyone pays their fair share. Yet, Connecticut seems to be heading in the opposite direction.
DRS is facing chronic understaffing and insufficient funding, hindering its ability to perform audits, enforce compliance, and pursue tax evasion cases. This neglect is not just a bureaucratic oversight; for some, it’s a deliberate policy choice that benefits the wealthy and well-connected at the expense of the state’s financial health.
Gov. Ned Lamont’s administration has repeatedly chosen to underfund the DRS, a decision that aligns suspiciously well with the interests of his affluent allies. By keeping the department understaffed, the governor ensures that the rich and powerful face less scrutiny, allowing them to exploit loopholes and dodge taxes without fear of repercussion. This not only exacerbates income inequality, but also places a heavier tax burden on working- and middle-class families who do not have the means to engage in sophisticated tax avoidance strategies.
And during a time when our budget is facing a $700 million hole from the evaporation of ARPA funds and carryover surplus leading to the near-certain threat of further program cuts, our legislators should be doing everything in their power to ensure that taxpayers are not evading taxes. This is especially true when the balance sheet shows that the investment in DRS will more than pay for itself.
The impact of this underfunding is profound. Policies designed to increase revenue from high-wealth individuals and corporations are rendered ineffective when there aren’t enough auditors to enforce them. As a result, Connecticut loses out on millions, if not billions, in potential revenue — funds that could be used to improve our schools, repair infrastructure, and provide essential services to our communities.
The underfunding and understaffing of DRS creates a cascading effect of underfunding and understaffing across other agencies with dire impacts on Connecticut’s working families. For example, since 2015, the number of Department of Labor (DOL) investigators has decreased by 28%, and since 2006 it has decreased by 42%. This has resulted in a backlog of complaints now hitting “record” levels. Cases of wage theft do not get assigned, and workers pay the price.
With greater understaffing, employers go from being deterred from engaging in wage theft to increasingly feeling emboldened. In the meantime, workers are deterred from even filing complaints at all, with extended backlogs creating the conditions for retaliation. More than simply being responsive to complaints, Connecticut needs proactive enforcement, particularly in industries where wage theft is most rampant and workers are most vulnerable to retaliation for filing a complaint.
Even as fine collection from DOL investigators more than pays for itself, the added layer of DRS understaffing demonstrates that we have no excuse to leave uncollected monies on the table that would more than pay for itself and jumpstart a multi-pronged effort to adequately and necessarily fully staff all of our public services.
This issue isn’t just about numbers on a balance sheet; it’s about fairness and justice. When wealthy individuals and corporations avoid paying taxes, they are essentially freeloading off the system. They benefit from public services and infrastructure without contributing to their upkeep, leaving the rest of us to pick up the tab.
To address this, Connecticut must prioritize the staffing and funding of the DRS, to start. This means allocating resources to hire more auditors, invest in advanced technology for tracking and analyzing financial data, and provide ongoing training to keep staff abreast of the latest tax evasion tactics.
Furthermore, there must be political will to hold the wealthy accountable. This includes resisting the influence of powerful lobbyists who push for tax policies that benefit the rich. It also means ensuring that the governor’s office prioritizes the needs of all Connecticut residents, not just the affluent few.
The IRS’s recent success in collecting overdue taxes from millionaires and corporations is a testament to what can be achieved with adequate resources and a commitment to enforcement. Connecticut stands to gain immensely from following this example. By adequately funding and staffing DRS, we can ensure that tax laws are enforced equitably, recover lost revenue, and restore public faith in our tax system.
It’s time for Lamont to prioritize the financial health of Connecticut over the interests of his wealthy friends and make meaningful investments in our state’s future.
Alexander Kolokotronis is the Director of the Naugatuck Valley Project and a member of the Steering Committee of Connecticut For All.
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Publish date : 2024-08-26 17:06:00
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