Michael Brochstein/Sipa USA via AP Images
Charles Rettig, commissioner of the Internal Revenue Service, at a hearing of the Senate Finance Committee, April 7, 2022
The Revolving Door Project, a Prospect partner, scrutinizes the executive branch and presidential power. Follow them at therevolvingdoorproject.org.
Earlier this month, The New York Times broke the story that former FBI director James Comey and his former deputy director Andrew McCabe, both loathed and eventually fired by President Trump, also both underwent rare and intensive tax audits under the National Research Program, which studies tax compliance and calculates the “tax gap” (the difference between legally owed tax and what is actually paid). Out of around 154 million annual tax returns, the National Research Program selected just 5,000 tax returns in 2017 and 8,000 in 2019 to audit. Neither man knew the other had undergone the same audit until a Times reporter told them.
Both audits were conducted under the leadership of Trump’s handpicked IRS head Charles Rettig, who remains IRS commissioner to this day after President Biden chose not to rock the boat last year by replacing him. As with other Trump appointees left in power, from disastrous USPS Postmaster General Louis DeJoy to Federal Reserve Chair Jerome Powell, who is currently trying to “get wages down,” the fallout proves that continuity is not the same as stability—especially after Trump’s presidency.
Rettig has been entangled in Trump’s affairs since well before he became IRS commissioner. During his confirmation process back in 2018, Rettig initially failed to disclose that he co-owned two Trump-branded rentals in Hawaii, from which he’d made as much as $1 million in income since his purchase in 2006. Trump likely made a profit from Rettig’s purchase. That’s not all: In 2016, over a year before Trump chose Rettig as commissioner, Rettig publicly defended Trump’s refusal to publicly disclose his taxes in a Forbes piece.
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Even Rettig admits he was “not a typical pick” for IRS commissioner. Before joining the IRS, he worked at Hochman, Salkin, Rettig, Toscher & Perez—a Beverly Hills law firm specializing in tax avoidance—for almost four decades. His former clients include a venture capitalist who used deceptive methods to evade tax responsibilities for overseas businesses and a billionaire who buried profits in offshore bank accounts. The firm has since been renamed as Hochman, Salkin, Toscher & Perez, but its mission remains the same: shielding wealthy clients from IRS “wealth squad” audits, which Rettig revealingly dubbed “audits from hell.” The very nature of Rettig’s pre-government career is antagonistic to his responsibilities as commissioner.
It was perfect, however, for Trump’s purposes. Once in power, Rettig did not hesitate to do the job Trump so clearly hired him for: refusing to comply with a congressional subpoena requesting the disclosure of Trump’s tax returns. That created a roadblock in a yearslong legal battle which continues to this day.
Rettig proved loyal to Trump’s agenda in another important way—by directing the IRS’s already measly resources toward the working poor instead of the rich. Under his leadership, the IRS continued to cut back on the number of audits of the rich, opting instead to harass poor Earned Income Tax Credit claimants. In fact, workers earning less than $25,000 in total gross receipts were audited at a rate five times higher than everyone else in 2021. Audits for millionaires are also significantly lower under Rettig. While 40,965 millionaires were audited in 2012, just 13,725 were in 2021—a nearly threefold decrease.
As long as Rettig remains in place, public perception of the fairness of the tax system and the government’s ability to hold the ultra-rich accountable will continue to deteriorate.
With this record, President Biden would have been more than justified in firing Rettig the moment he took office (we advocated as much at the time). With recent developments, however, the case has only grown stronger.
Some lawmakers understand this. Two months ago, Rep. Bill Pascrell (D-NJ), chair of the House Ways and Means Committee’s Subcommittee on Oversight, called for Rettig’s resignation after a report that the IRS had destroyed 30 million information documents related to paper-filed tax returns in 2021. Now Rettig is implicated in what would be a “titanic scandal,” if it becomes clear that the IRS went after the former president’s detractors at his request. As Rep. Pascrell commented, “There may be no group on the face of this earth that deserves the benefit of the doubt less than Donald Trump and his government enablers.”
Yet some have been willing to give it over and over again. Last year, some congressional Democrats spoke anonymously of their reluctance to replace Rettig, when leaving him in his position could insulate them from Republican allegations that they are “weaponizing the IRS for partisan reasons and from assuming responsibility for its dysfunction.” Such complacency flies in the face of good governance, and may in fact enable Republicans to weaponize the IRS for their partisan purposes. Democratic leadership must stop shying away from the hard decisions necessary to serve the public interest.
The next step is urgent and obvious: Before the midterm elections and the end of Rettig’s term as commissioner—both in November 2022—Biden must replace Rettig. Several roadblocks to doing so have already been cleared. For example, until the Comey and McCabe audits, Sen. Sherrod Brown (D-OH) had reportedly been satisfied with Rettig’s guidance and was even willing to vote for his reappointment. However, the audit scandal has changed his mind. On July 25th, Brown and five other Democratic senators wrote a letter to Rettig expressing concern over the IRS’s expansive tax return backlog, in which twice as many tax returns currently need processing as in previous years.
As long as Rettig remains in place, public perception of the fairness of the tax system and the government’s ability to hold the ultra-rich accountable will continue to deteriorate. The Senate’s current reconciliation bill, the Inflation Reduction Act of 2022, directs $80 billion toward IRS tax enforcement. With these funds, the IRS can finally hire more auditors and update data processing technologies to comprehensively detect tax cheats. Critically, the bill lays out that the IRS commissioner is responsible for developing a plan for how to allocate this funding within six months of its enactment. Rettig has proven himself to be unfit to produce a plan committed to serving the public good and Biden’s aim of unrigging the tax system. An IRS chief devoted to combating legitimate tax fraud by its greatest perpetrators should be in charge of administering this overdue influx of resources. Whoever fills the IRS commissioner’s shoes next year will determine whether the IRS is able to rehabilitate itself into competence—and regain public trust.
If Biden fails to act, or worse, renominates Rettig, he will own the public distrust that ensues from Rettig’s continued tenure, including from this most recent, potentially massive scandal. He’s made this mistake once before with poor results: Last November, Biden renominated Trump’s Federal Reserve chair, Jerome Powell, despite grave concerns about his ethical leadership. Today, Powell’s Fed continues to hide key information about those scandals while charting a potentially disastrous course for the economy.
The window to nominate and confirm a replacement before potential losses in the Senate shift the balance of power is incredibly small, but that should not stop Biden from moving quickly to replace Rettig with someone with a proven track record of supporting strong oversight and combating tax evasion by the rich.
Biden has been vocal about how America’s wealthiest have neglected to pay their fair share of taxes. New IRS leadership, coupled with a funding increase big enough to reverse the agency’s long, slow staffing bleed—an increase that would more than pay for itself in enforcement returns—might just turn the tax agency into an able and trusted ally in the fight for tax fairness.
