Republicans Hunting for Revenue Should Look to Tech Companies

Mytheos Holt
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Posted: Nov 07, 2017 9:45 AM
Republicans Hunting for Revenue Should Look to Tech Companies

Despite constant attacks from the Left, tax reform has begun to take shape in the House and Senate. And unlike the many botched attempts to repeal Obamacare, there appears to be both real consensus in favor of the idea among Republicans, not to mention a general appetite to take it up.

However, in spite of this rosier outlook, details still remain to be ironed out. For instance, some commentators on the center-right have raised concerns about the bill’s appearing to transform deductions and tax credits into weapons of political retribution. This is a reasonable concern in theory, but in practice, it overlooks a key political reality. Many of the more old fashioned tribunes of fiscal responsibility within the GOP are skittish about tax cuts that don’t make some attempt to pay for themselves. This is hardly an unfair or anti-Republican position to hold: after all, the Americans for Tax Reform (ATR) pledge explicitly permits the elimination of deductions and credits, provided those eliminations are used to finance other tax cuts.

But if such deductions and credits are to be eliminated in this fashion, it still raises the question of which ones should face the ax. It is surely ridiculous to expect Republicans to destroy the credits that most help their own voters, and so the natural conclusion is that they must find ways to raise revenue that primarily punish the other party, if they are to be able to do revenue neutral tax policy at all.

Nevertheless, there is some merit to the idea that certain ideas from the Republican caucuses – like eliminating mortgage interest deductions above a certain threshold – cast too wide a net by punishing everyone who happens to live in a blue state, or even some purple states. To remedy this, I would suggest Republicans look instead to a different source of revenue, and one that would target arguably the most dangerous and monolithically hostile industry for right-leaning interests in America: the tech industry. Specifically, Republicans should put through reforms that actually make the tech industry pay its taxes.

Make no mistake, in our current tax system, this is not at all a straightforward proposition. A piece from late last year in Network World points, for example, to tax loopholes exploited by companies like Apple to keep their profits in overseas corporate headquarters in order to avoid US taxes. Ireland is the most notable home for these sorts of schemes, and deservedly infamous for it. Cutting taxes is one thing, but enabling all-out tax avoidance by Left-wing, globalist companies – some of whom refuse to even call themselves American – is hardly something that Republicans have an interest in doing, and so such loopholes could be reformed as one vehicle for revenue.

However, perhaps this would be a bridge too far for business-minded Republicans: after all, it’s not only tech companies who use these sorts of loopholes, and the more corporate-skeptical forms of Bannonism and Trumpism have yet to fully penetrate the Republican majorities in Congress. Fair enough. In that case, Congress could at least tighten up the reporting requirements for 1099 forms.

But wait, you say, how does that affect tech companies? Well, consider the housing sharer Airbnb: along with harboring illegal immigrants, Airbnb also makes it very easy for its hosts to harbor taxable income by adhering only to the absolute letter of the law requiring reporting of that income. That is to say, according to their own website, Airbnb doesn’t send 1099 forms to its hosts at all unless those hosts rent out their homes over 200 times per year, and make over $20,000 in a year. Anything lower, and Airbnb relies on their hosts to check their income on the website and report it voluntarily.

This almost certainly permits mass underreporting of income. The IRS itself acknowledges that fully 51 percent of taxpayers collecting rent and royalties, and 64 percent of those collecting “other” forms of income systematically misreport their earnings, which bears a large responsibility for the so-called “tax gap.” To be strictly fair to Airbnb, their approach is consistent with the letter of IRS regulations, at least regarding the requirements for sending 1099-K forms. And to be fair to tech companies generally, other sharing giants, like Uber, are far more forthcoming, sending 1099-MISC forms even to drivers who make as little as $600. In fact, Airbnb used to even do things in much the same way, until 2015, when it apparently decided it could resort to only following the letter of the law and disregarding its spirit. In other countries, this kind of behavior has already led to public outcry and the risk of increased audits.

Now, to some, it might seem unfair to make tax policy more restrictive simply because of the dodginess of one company. And this would be a fair objection, but for one problem: Airbnb is not some mom and pop shop that happens to be cutting corners with its taxes. As of January 2016, Airbnb was estimated to have 550,000 hosts in the United States. Even an extremely conservative average of $2000 of unreported income from that many people comes out to over $1 billion: hardly chump change even at the federal level.

In other words, there is low-hanging fruit that tax reformers in Washington could easily reach for without hiking taxes a dime, but instead simply by requiring that the IRS be made aware of money it is already owed. Given the lack of love between tech and Republicans, this kind of policy would be more than an easy money maker: it would send a signal that America will not tolerate its essential functions being disrupted by those who are too arrogant to follow our laws, and who think a few algorithms and a lot of money can buy their way out of those laws. Small reason, then, for those trying to lighten the tax load of American businesses generally to ignore the prospect of making those who behave badly clean up their act.