United We Stand, Divided We Fall

We have just added an Internal Revenue Service (IRS) section under taxes in our website. It includes background information including the IRS history, the way it is organized today, and its budget since 2008. We have also included information on its staffing levels overall, by function, and by personnel types from 2008-2012. We also explain the $450 billion tax gap, the outstanding taxes owed each year to the Federal Government but uncollected. We have also noted considerations in making the IRS function better (especially in collecting more monies especially in closing the tax gap) and our proposal for the changes we believe will be most fruitful in cutting the US federal deficit.

Harry Pukay-Martin

Newsmax, the email based headline and news service, just published an article on Social Security Disability entitled “Surge in Disability Claims called a ‘Policy Driven Epidemic’” on Sunday August 18, 2013. The report notes that the Trust fund will be depleted in 3 years, and at $132 billion in expenditures in 2012, it spends more than the Department of Agriculture, Homeland Security, Commerce, Labor, Justice, and the Interior combined, The article also noted the tripling of expenditures since 2000 and the more than doubling of disabled recipients to US workers since 1970 (from 30 disability recipients per 1000 workers to nearly 75). It further highlighted the increase in Medicare expenditures from this program as disability recipients are eligible for Medicare after 2 years. The cost to Medicare was 80% of the disability expenditures.
Newsmax noted that a Cato report blames the Congress for this run away program as it expanded benefit levels over the decades and liberalized the eligibility standards. Originally the program covered strokes and cancer and other extremely disabling conditions but Congress in its wisdom or lack thereof legislated coverage for many more conditions including depression, back pain and chronic fatigue syndrome. Finally, Newsmax noted that few people return to the work force once on the disability program.
There is a critical need for Congress to take action to cut this program substantially and return many former workers to the workforce. We hope Congress will take action soon.

During the last US Debt Ceiling Approval, Congress began a useful process by agreeing that there would be no pay for any members of the US House or Senate if they did not pass a budget by April 15, 2013. This ‘No Budget, No Pay’ Act resulted in the House passing a budget on March 21, 2013 and the Senate on March 23, 2013. Given another pending Congressional Debt Ceiling Approval between September 2013 and December 2013, we would recommend a further process improvement. If there is no FY2014 budget approval by both Houses of Congress and signed by the President by September 30, 2013, pay checks for both Houses of Congress and the President and his cabinet will stop effective October 1, 2013. They will not start again until such steps are completed and only from that date forward. No catch up in pay will occur.
Further, since the major entitlement programs of Social Security Disability, Social Security Retirement, and Medicare are projected to be depleted as reported to Congress and the President in May 2013 by the Trustees of those Trust Funds, the Congress must enact and the President must sign reforms in those programs to ensure their future solvency by December 31, 2013. If this is not done, pay checks for both Houses of Congress and the President and his cabinet will stop effective January 1, 2014. They will not start again until such steps are completed and only from that date forward. No catch up in pay will occur.
For each subsequent year, the budget for the next fiscal year must be approved by both Houses of Congress and signed by the President on June 30 subsequent to the start of the fiscal year (i.e., for FY 2015, the budget must be approved and signed by June 30, 2014). If that is not completed, pay checks for both Houses of Congress and the President and his cabinet will stop effective July 1, the day after the deadline. They will not start again until such steps are completed and only from that date forward. No catch up in pay will occur.
Further, for each subsequent year, if the report from the Trustees of the Social Security and Medicare Trust Funds shows a depletion of Funds and an imbalance over the projected 75 year period, the Congress must enact and the President must sign reforms in those programs to ensure their future solvency by December 31 of that year. If this is not done, pay checks for both Houses of Congress and the President and his cabinet will stop effective January 1, the day after the missed deadline. These paychecks will not start again until such steps are completed and only from that date forward. No catch up in pay will occur.
The original proposal by Congress made sense. If you don’t do the job, you don’t get paid. That is true in every pursuit of life. It should also be so ‘in Washington D.C. where much of our economic future is being decided. This expanded proposal simply improves on the original ‘No Budget, No Pay’ Act as enacted by Congress and signed by the President.
Harry Pukay-Martin

Michael J. Boskin wrote an opinion piece in the Wall Street Journal published last Monday July 15, 2013. It was entitled the 2016 Disability Insurance Time Bomb. As we noted before, the Social Security Disability Fund will be bankrupt in 2016. As Boskin notes, this bankruptcy will hit just before the next Presidential and Congressional elections. Maybe that will force the Congress and the President to address this issue before that time. We hope so. Boskin further indicates ‘With luck, the looming implosion of the Disability Insurance Fund will focus attention on other entitlements…Coming to grips with the disability program also may provide a guide to reform of the larger programs.’ We whole heartedly agree and hope this impending bankruptcy would be the catalyst and provide a template for reforming the Social Security Retirement, Medicare, and Medicaid programs.
He reviewed the explosion of the beneficiaries and costs (from 2.7 million beneficiaries in 1970 to 11 million in 2012 and an 8 fold increase in expenditures if inflation is factored in during this same time period) and noted that the increase in both measures ‘is far beyond what would be expected from demographic trends and elevated unemployment’.
He reviewed the legislative history and noted the 1980 Congressionally mandated increased eligibility reviews followed by the backlash which resulted in the 1984 Congressional widening of the criteria to include back pain, arthritis and expanded mental illness diagnoses. Despite this enumeration, these factors still did not account for the explosion of beneficiaries and expenditures. He too then pointed to what Chana Joffe-Walt labeled the ‘vast disability-industrial complex’ .
To solve the problem with this program, Boskin suggests ‘starting with a more sensible definition of disability and more frequent re-evaluation’ as well as ‘better incentives to return to work for those who can.’ He also suggests implementing ‘another useful reform…base disability-insurance employer taxes on disability experience’. He noted this reform model has been successfully used in the Netherlands.
We hope the spot light shed on the Social Security Disability Program by Boskin’s article will spur the President and the Congress to take action on this soon to be bankrupt program.
Harry Pukay-Martin

This impending bankruptcy of the Social Security Disability Fund is becoming more newsworthy as the date it goes the way of the City of Detroit gets closer. In 2016, less than 3 years from now, the Social Security Trust Fund will be depleted. The Kiplinger’s Retirement Letter took note of this in their recent issue in an editorial note by Susan Garland, their editor. She noted ‘the income to the trust fund will cover just 80% of the benefits’ and the call of the Trustees for ‘legislative action as soon as possible’. She also indicated the Trustees proposed the solution of using the Social Security Retirement Trust Fund to bail out the Disability Fund. As we have noted before, this is an outrageous and wrong headed solution. It means the Retirement Fund will be bankrupt 2 years earlier than presently projected and would mean the retirees would be subsidizing the deemed disabled which includes many slackers and scammers. Garland further went on to indicate the huge increase in beneficiaries since the early 2000’s from 6.6 million beneficiaries to over 11 million today and attributed it partially to the aging of the baby boomers. We agree with her statements. We would also add the trend of increased beneficiaries has been going on since the 1960’s. According to Michael J. Boskin, economist, the disabled rates are substantially higher than expected even with the baby boomers. As we have noted before, the increased rates are do to the abuse of the program by some scamming recipients, too helpful doctors, 20 states including Oregon and Washington who are converting their poor from welfare to disability, consultants who receive $2,000 to $3,000 by converting Medicaid recipients to Disability recipients, and lawyers and their firms.
She finally notes that Congress has known of this impending bankruptcy since 1995 and has chosen to do nothing. It is hoped that the Congress and the President will take prudent steps to resolve this bankruptcy. Otherwise those folks who are truly disabled and legitimately receiving Social Security Disability benefits will be hurt by having their benefit reduced by 20% to 25%.
Harry Pukay-Martin

The Social Security Disability Fund will be bankrupt by 2016. As noted before, the program is being scammed by some recipients, too helpful doctors, 20 states including Oregon and Washington, consultants who receive $2,000 to $3,000 by converting Medicaid recipients to Disability recipients, and lawyers and their firms. Some of these same predators are now attacking the carcass of this dying program directly. The are doing this by trolling for potential recipients of this program on face book and other social media sites. One ad that my friend just sent to me was from disabilityincomehelp.com. It notes that ‘special rules make it easier to get approved if you are over age 50. Click here to get a free consultation to see if you may qualify for benefits of $2,533 a month in ssdi benefits’. It appears to be from a legal firm. If you goggle social security disability help, you get two other sites that also appear to be legal firms. No wonder the Social Security Disability Fund is going bankrupt. It is being abused and abused in many way by multiple groups.
To solve the bankruptcy of the Social Security Disability Program, more funding of benefits is not necessary nor is combining it with the Social Security Retirement Trust Fund as has been proposed by the Administration. By the way, that latter proposal would cut 2 years off the present life of the Social Security Retirement Trust Fund. Why should the rest of us suffer because of these scammers and their many partners?
Instead clean up this program by adding sufficient personnel to the Social Security Administration budget to review the 11,000,000 claimants over the next 4 years and to insure the Administrative Hearings are attended by an advocate for the taxpayer and the Trust Fund. Fine the 20 states who are gaming the system and converting their poor from a state responsibility to a Federal responsibility. Prohibit the paying of consultants a bounty of $2,000 to $3,000 per person that is converted. Put in place a system to return these disabled back to work. The short term savings utilizing these steps would be enormous and could return the Social Security Trust Fund to solvency almost immediately. Only $35 billion per year is needed to reach a breakeven. Our estimate of savings by following the steps above are $47 billion annually out of a $146 billion yearly budget. A $47 billion cut in expenditure would allow the replenishing of the Trust Fund. When will the Congress and the President act. We hope soon.
If this is not done and the fund goes bankrupt in 2016, those folks who are truly disabled and legitimately receiving Social Security Disability benefits will be hurt. Benefits for these legitimate folks will be cut by 25% just as will those benefits for the scammers. Wouldn’t it be better to help the truly disabled by removing the scammers.
Harry Pukay-Martin

After showing success over 10 years in forcing non-filers to either file or accept an IRS generated return (from W-2s, 1099s, and other information), these so called automated substitutes for return (ASFR) have decreased by 54% in 2012. Why? According to the AICPA’s Tax Matters editor Paul Bonner in the Journal of Accountancy (June 2013 page 80), IRS’s explanation was manpower issues and a practice change. The practice change of not generating a ASFR if the taxpayer already has a balance due on another tax return should be reversed. Get real! If a taxpayer owes monies, record such and follow up. The manpower issue is long standing and needs to be addressed. This ASFR program partially addresses the $28 billion non-filing tax gap issue discussed in my July 15, 2013 blog. This ASFR program has been successful but unfortunately so successful that staffing needs to be beefed up to do the follow up on these cases. This should be one of the issues addressed with the $3 billion of added IRS funding in FY2014.

Harry Pukay-Martin

Some members of Congress are advocating  the IRS budget be cut by $3 billion.  Are they irrationally responding to the bad behavior of some members of the IRS or are they insane, stupid, or just plain ignorant?  I don’t know but their recommendation is economically illogical.  We have a tax gap of $450 billion per year.  If half is collected, that substantially decreases our deficit.  We only audit 12% of the over $1,000,000 income returns and generate over $4 billion.  We only audit 3% of the $200,000 to $1,000,000 returns and generate nearly $3 billion.  Each dollar spent on these paper and field audits generates many  more additional dollars for the US Treasury.  Give the IRS more budget dollars  in FY 2014 and subsequent years (we estimate $3 billion more) and help solve the deficit problem.  Insure everyone pays their fair share.

Sam Allen

The IRS has been in the papers lately for its bad behavior. It subjected many conservative groups and a few liberal groups to added scrutiny and long delays in the approval of their organizations. It has spent large sums on questionable conferences. Some IRS employees have abused their credit cards. Find the guilty folks, punish them, and move on.
It is imperative that the IRS collect the outstanding money owed to the Federal government and labeled the tax gap. This tax gap amounts to an estimated $450 billion per year; i.e., funds owed to the federal government but unpaid because of underreporting of income ($376 billion), non-filing ($28 billion), and underpayment of taxes ($46 billion). If we collect half of that, it shrinks the federal deficit by one third. We can collect those taxes owed to the federal government by adding personnel to the IRS and doing more correspondence and field audits. We recommend auditing all income tax returns over $1,000,000. This can be accomplished by auditing each of these taxpayers every 3 years for the last 3 years filed. We recommend auditing all tax returns over $200,000 a year but less than $1,000,001. This can be accomplished by auditing each of these taxpayers every 4 years for the last 4 years. We recommend doubling the audit rates on all other returns. Further, tax preparers of over aggressive returns should be scrutinized and re-educated, fined, or removed from tax preparation work.
The additional funds needed to accomplish this are estimated to be $3 billion per year. This expenditure will return much more in new tax revenues than it will cost. Economically, we should continue to invest in the IRS until the last dollar spent generates a little less than a dollar. We are not even close to this theoretical figure. The President has asked for a $1 billion more for FY2014. The IRS budget should be increased by $2 billion more than this. We would hope the Congress and the President would add $3 billion to the IRS budget for FY 2014 and thus substantially reduce our horrendous deficit and contain our debt accumulation.
Harry Pukay-Martin

The report is out with much the same problems noted.  When are the President and Congress going to act?  The Social Security Disability Fund will be bankrupt by 2016 unless legislation is passed.  It is totally unfair to have my retirement benefits cut because the Social Security Disability Fund is bankrupt but that is one proposal from the Administration.  Why not review the recipients again as required by law?  Many of these recipients are not disabled but judged to have back problems and depression.  Many back problems can be treated with exercise, alternative therapies, and drugs.  Many depressives can be treated with exercise, counseling, and drugs.  The program is being scammed by recipients, too helpful doctors, states such as Oregon and Washington, and consultants who receive $2,000 to $3,000 by converting Medicaid recipients to Disability recipients.  No wonder the program is bankrupt!  I ask your support in demanding immediate action by the President and the Congress to save the Social Security Disability Fund from bankruptcy and to put the two other critical trust funds on a stable path.

Sam Allen