April is a good time to reflect on our tax system and enforcement. Most Internal Revenue Service enforcement is automated and not done by individual agents. The automation involves matching the 250 million W-2 wages earned forms, the 5.4 billion 1099 miscellaneous income forms, and cash transaction reports filed by banks and other financial institutions to the 165 million individual income tax returns filed yearly. According to the IRS, “it’s not labor intensive.”[1]
Our tax system relies heavily on the wealthy. The Tax Foundation’s analysis of 2022 IRS data shows that the “top 1%, 1.5 million tax returns with adjusted gross income above $663,000, earned 22.4% of the country’s total reported earnings, and paid 40.4% of income taxes.”[2] The bottom 50%, 76.9 million returns, with earnings under $50,000, earned 11.5% of income and paid 3% of the tax. As a letter writer to the Wall Street Journal pointed out, the IRS must process 76.9 million returns for 3% of the tax. Eliminating the requirement to file at taxable income less than $50,000 would save the IRS a lot of work.[3]
On Wednesday, April 9, 2025, some of our portfolio managers were presenting on financial/investment topics to a gathering of family lawyers. The first three days of the week had been tumultuous in the stock market as tariffs were on, then off, and the market gyrated wildly. The second of three questions at the end of the presentation was from one lawyer who wondered whether Social Security would be around for her retirement.[4] The depth of anxiety about Social Security and its companion health insurance for working Americans is always a surprise. The strength of that concern (perhaps reflective of politicians’ inability to reassure their constituents due to constituent distrust of those in charge of either political party) probably guarantees that politicians will find a way to keep these programs afloat.
The quote often attributed to Winston Churchill comes to mind. “Americans always do the right thing after they have tried everything else.” We’ll reiterate here what we’ve said before in these pages. After “everything else,” Social Security and Medicare were started for and are financed by working Americans. The effort to include non-working Americans in them threatens the financial stability of the programs. Just get back to what they were created to do and their survival is guaranteed. A work requirement for both is what’s needed and helping the non-working in another way would be honest. As we mentioned in QMP Fall 2024, “the only adjustment that needs to be made is to require ‘all able-bodied Americans to work as a condition for receiving welfare.’ ”[5]
If you or any other advisors have questions about the issues raised here, please contact your investment manager or one of us.
William H. Darling, CPA – Chairman & CEO
Jeanne M. FitzGerald, CPA – Tax Manager