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Playing the Numbers: How the U.S. Government Has Mishandled Your Tax Dollars

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Playing the Numbers

A brief history of U.S. government's misadventures, mishandling and misuse of YOUR tax dollars.

Government Tax Collections: How it all began

1791-1802: No New Taxes: The United States government in its earliest days was supported by internal taxes on distilled spirits, carriages, refined sugar, tobacco and snuff, property sold at auction, corporate bonds, and slaves.

1812: The high cost of the War of 1812 brought about the nation's first sales taxes on gold, silverware, jewelry, and watches.

1817: Congress did away with all internal taxes, relying on tariffs on imported goods to provide sufficient funds for running the government.

1862: To support the Civil War effort, Congress enacted the nation's first income tax law.

  1. It was a graduated income tax.
  2. A person earning from $600 to $10,000 per year paid tax at the rate of 3%. Those with incomes of more than $10,000 paid taxes at a higher rate
  3. Additional sales and excise taxes were added, and an "inheritance" tax also made its debut.
  4. The Act of 1862 established the office of Commissioner of Internal Revenue.

1866: internal revenue collections reached their highest point in the nation's 90-year history--more than $310 million, an amount not reached again until 1911.

1894: Congress revived the income tax, but the Supreme Court ruled it unconstitutional the following year. That same year, the first Form 1040 appeared after Congress levied a 1 percent tax on net personal incomes above $3,000 with a 6 percent surtax on incomes of more than $500,000.

1918: During World War I, the top rate of the income tax rose to 77 percent to help finance the war effort.

1924: Tax rate dropped sharply in the post-war years, down to 24 percent, and rose again during the Depression. During World War II: Congress introduced payroll withholding and quarterly tax payments.

1950s: The agency was reorganized to replace a patronage system with career, professional employees. The Bureau of Internal Revenue name was changed to the Internal Revenue Service.

At the beginning of the 20th century governments at all levels in the United States raised almost all their revenue from ad-valorem taxes: tariffs, sales taxes, and property taxes.

Starting in World War I, after the passage of the federal income tax, federal revenue became increasingly dependent upon income taxes. After the passage of the Social Security Act in 1935, the income tax was augmented by social insurance taxes. States began to get revenues from income taxes in the 1920s and from social insurance taxes beginning in the 1930s. But the principal source of revenue remained ad-valorem taxes. State income taxes began to ramp up in the 1970s, but flattened after 1990. Revenue from fees, employee retirement operations, and lotteries began to represent a large share of revenue in the 1980s and thereafter.

Local revenues are collected principally through ad-valorem taxes. Income taxes remain negligible in most localities. Fees and business income, including employee retirement operations, have steadily increased as a share of revenue throughout the 20th century.

FACT: The U.S. tax code has been amended 4,680 times in the past 12 years alone and now runs to a mind-boggling 74,000 pages.

Government embarrassments, mishandlings, abuse of power and scandals. It didn't begin this year with the I.R.S.

1951: Congressional Republicans uncovered widespread corruption at the Bureau of Internal Revenue, leading to the dismissal of 66 agents for such activities as bribe-taking and extortion. President Harry S. Truman proposed a reorganization in which tax agents would be hired through the civil service, rather than political patronage.

1953: Republican Dwight Eisenhower endorsed Truman's reform plans and in 1953 changed the agency's name to the Internal Revenue Service.

1950s and 1960s: FBI Director J. Edgar Hoover's Counter Intelligence Project -- codenamed COINTELPRO -- had unlimited access to the IRS files of such suspected "subversive'' organizations as the National Association for the Advancement of Colored People and the National Council of Churches; it even ordered an IRS audit of Dr. Martin Luther King Jr.

Early 1960s: the IRS responded to President John F. Kennedy's public complaints about taxexempt conservative groups by setting up the Ideological Organizations Audit Project, which challenged their tax status. SOUND FAMILIAR?

1964: An FBI plan to "discredit" the United Klans of America called for illegally disclosing tax information about key members.

1968: The FBI directed the IRS to open investigations on 35 activists suspected of not filing tax returns. An FBI memo from that August of 1968 called for an IRS audit of a university professor suspected of planning protests to disrupt the Democratic National Convention in Chicago.

1966-1974: The FBI obtained about 200 tax returns from the IRS. Of that group, most were for domestic intelligence investigations, largely of black nationalists and anti-Vietnam War activists. In 1968, the IRS program of cooperating with the FBI without asking questions was deemed "illegal" by a senior IRS official, though abuses continued despite the call for internal reforms.

Late 1960s: President Richard Nixon encouraged a secret IRS program called the "Special Services Staff" to investigate his political opponents and harass them with audits.

1992-1997: A 2001 study of IRS audits published in the Economics and Politics journal found that tax returns audited by the IRS is markedly lower in states that are important to the sitting president's re-election aspirations.

Fannie and Freddie are bailed out

Late 1990-2000s: The two big government-sponsored mortgage finance companies each had multibillion-dollar accounting scandals, leading to a $400 million civil fine for Fannie aMae and a $125 million fine for Freddie Mac. But far from being dismantled, Fannie and Freddie have avoided insolvency, thanks to massive taxpayer bailouts.

Military Madness

Jan. 2013: Two serious Accounting Problems that were so bad, the GAO cannot even complete an audit on...

  1. Department of Defense (Budget: net cost of $799.1 billion)
  2. Department of Homeland Security (Budget: net cost of $48.7 billion)

How bad is it?: The U.S. Government Accountability Office (GAO) said they cannot render an opinion on the 2012 consolidated financial statements of the federal government because of widespread material internal control weaknesses, significant uncertainties, and other limitations.

2011: Same complaint. The main obstacles to a GAO opinion on the accrual-based consolidated financial statements were: Serious financial management problems at the Department of Defense (DOD) that made its financial statements unauditable.

The I.R.S. implodes

May 2013: A major scandal, ongoing. The IRS is accused of misusing its audit powers in addition to singling out conservative groups seeking tax exempt status. The IRS scandal involved the Tax Exempt and Government Entities Division of the IRS openly targeting Tea Party and other conservative groups applying for tax-exempt 501(c)4 "social welfare" organization status between 2010 and 2012 for extra audits and agency scrutiny. The result was a focus of IRS audits -- which can cost tens of thousands of dollars and hundreds of employee hours to targeted organizations -- upon the political Right, as well as delays of two years or longer in approving the tax-exempt status.

During House hearings the following was revealed:

  1. Liberal groups were not selected for nearly as many audits, nor were they singled out by ideological code words, as conservatives had been.
  2. "In early Calendar Year 2010, the IRS began searching for applications with "Tea Party," "Patriots," or "9/12" in the organization's name as well as other "political-sounding" names."
  3. As of December 17, 2012, many organizations had not received an approval or denial letter for more than two years after they submitted their applications. Some cases have been open during two election cycles (2010 and 2012)."

And then, even more scandalous behavior at the I.R.S. The Treasury Department's audit of the Internal Revenue Service's 225 employee conferences that cost taxpayers nearly $50 million might not be accurate or include all of the IRS expenses because the agency that daily demands records from taxpayers didn't supply all the receipts sought by the investigators.

For example, $4.1 million spent. MAYBE. In reviewing a costly 2010 IRS conference in Anaheim, Calif. IRS management provided documentation showing the total final costs at $4.1 million. But the Inspector General we could not obtain reasonable assurance that this amount represents a full and accurate accounting of the conference costs. The IRS was unable to provide documentation to support all costs associated with the conference.

Abuse at the State and Local Level: It's Not Much Better

2013, California: $20 million, in hidden state parks money started as accounting error in mid- 1990s, then snowballed. The scandal surrounding the decision by California's top parks officials to conceal millions of dollars in public funds -- even as they were asking the public to donate money to keep parks open -- had its roots in accounting errors made in the mid-1990s.

  1. State parks officials covered up the mistakes for at least 15 years because they worried that they would be publicly embarrassed and the money would be taken away from their department to balance the wider state budget.
  2. Error was known for years by top parks managers.
  3. None of the money was stolen; it sat unspent.
  4. Investigators concluded that the total amount of money hidden by park officials from the state Department of Finance was $20 million.
  5. The attorney general's investigation found the accounting errors began in the administration of Gov. Pete Wilson, around 1996, and that by 2002 top budget managers in the parks department knew about it.
  6. Amazingly, officials concluded no crimes were committed. The problem, they said, "apparently began and grew as a result of unintended errors in calculating and reporting prior-year adjustment figures in annual budget reports between 1996 and 2002."

December 22, 2000: the Connecticut Resources Recovery Authority (CRRA) signed a $220 million deal with the Enron Corporation. The deal would advance Enron $220 million. In exchange, the CRRA would receive monthly payments of about $2.2 million. The payments amounted to a 7% rate of return on the monies advanced. When Enron went bankrupt in December 2001, the payments ended, the money was lost.

Sources:

http://www.huffingtonpost.com/2013/01/18/gao-audit-federal-governmentdefense_n_2507097.html

http://www.breitbart.com/Big-Government/2013/05/19/IRS-scandal-widens-Agencyappeared-to-misuse-audit-power-against-conservatives-groups

http://www.mercurynews.com/california/ci_22312262/new-report-hidden-state-parks-moneystarted-accounting

http://www.infoplease.com/ipa/A0005921.html

http://swampland.time.com/2013/05/14/anger-over-irs-audits-of-conservatives-anchored-inlong-history-of-abuse/

http://theweek.com/article/index/245319/the-irss-long-history-of-scandal

http://www.theatlantic.com/politics/archive/2013/06/proof-the-irs-didnt-target-justconservatives/276536/

http://www.nysscpa.org/cpajournal/2007/907/essentials/p18.htm

http://dealbook.nytimes.com/2012/11/20/graphic-a-long-line-of-accounting-scandals/

http://www.nationalreview.com/articles/336632/mega-scandal-everyone-has-forgotten-johnfund

http://www.fool.com/investing/general/2012/05/02/the-10-dumbest-ways-the-government-wastestaxpaye.aspx

http://washingtonexaminer.com/audit-irs-lacks-receipts-for-lavish-conference-expenses/article/2531115

http://www.bloomberg.com/apps/news?pid=20601070&sid=aY5OQ5xv9HR8

http://washingtontimes.com/news/2006/sep/21/20060921-115116-5387r/

http://beforeitsnews.com/economy/2012/10/this-years-most-outrageous-examples-ofwasteful-government-spending-2458184.html



Playing the Numbers