Late last month, David Cay Johnston of the New York Times managed to get a story about IRS layoffs picked up by the San Francisco Chronicle and placed on page three. That's no small challenge, even in one of the most politically charged cities in the nation. It was not a sexy story, neither to liberals nor to conservatives.
But the story's timing was impeccable.
Johnston reported that the IRS was poised to lay off 157 of its 345 estate- and gift-tax attorneys working at agency offices throughout the country — a division of investigators that generates more revenue for the federal treasury by catching tax cheats than any other group of auditors, about $2,200 for every hour that they work.
Dismantling the estate tax has been among the most aggressive crusades taken up by the Republican Party and its friendliest contributors for at least the last decade. Leaked to the Times by IRS whistle-blowers, the story about the layoffs surfaced just days before Congress rejected for the fifth time since 2001 an attempt by fiscal conservatives to get rid of the estate tax. The legislation failed despite Republican control of both the House and Senate. Even tempting Democrats with the first federal minimum-wage hike in 10 years couldn't do the trick.
So how could defending the estate tax and the right of the IRS to collect it survive two branches of the federal government dominated by a political party that holds most taxation in contempt? It's because families awash in seemingly infinite wealth are the only ones who get hit by the tax — despite false claims made by the GOP that the estate tax kills small businesses.
California filed more estate-tax returns in 2001 than any other state in the country by a margin of thousands. The only state that came close was Florida, and California still filed around 6,000 more returns, according to the most recent IRS numbers.
In other words, the Golden State is filthy, stinking rich and more vulnerable to the estate tax than other states. GOP party leaders in Washington insist the issue will return in the form of a new bill, and the IRS is behaving as if the estate tax has already disappeared. If it does, the richest families in the United States — highly concentrated in California and the Bay Area — stand to collectively save billions of dollars.
The Bay Area contains within its sloping hills and mammoth upstart tech firms higher income levels and more general wealth than almost anywhere else in the country. In fact, the San Francisco metropolitan area is the fourth wealthiest in the nation, according to Merrill Lynch, and two tiny cities between here and Mountain View, where Google is based, have the highest per capita median income in the United States. Those two cities, Atherton and Hillsborough, have a combined population of about 17,000, and while many of these techie tycoons are young, the day will come when they die and pass millions of dollars on to their descendants. Will there be enough tax investigators available to audit those estates? Will there even be an estate tax?
Following Johnston's revelations, a Times editorial suggested the layoffs were a politically motivated attempt by the Bush White House to circumvent the legislative process. What it can't accomplish through Congress it can do by handcuffing the tax police.
"This is an election year issue," said Jay Adkisson, a private sector tax lawyer from Laguna Niguel who documents egregious cases of fraud on his Web site, Quatloos! "They're trying to appease Republican voters who were angry over the failure of Congress to do something about the estate tax."
The story of the IRS layoffs didn't just catch the attention of readers. Congress responded too.
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