Who Goes to Prison over Trump’s Tax Cheating?

Not Trump of course. Nope, the whistleblower.

On May 1, 2024, Charles Littlejohn began serving a five-year prison sentence for unauthorized disclosure of tax information. His crime is described by the Department of Justice as follows: Littlejohn, a contractor with the IRS, stole documents associated with “Public Official A” and provided it to “News Organization 1,” which published several articles using the information.

As anyone following this case would recognize, Public Official A is President Donald J. Trump, and News Organization 1 is The New York Times.

Littlejohn performed a public service. A presidential tax return contains information highly relevant to the voting public, and President Trump broke decades of tradition by refusing to disclose his returns. Moreover, when President Nixon’s tax return was leaked in the 1970s, the IRS leaker was not even indicted.

Littlejohn followed up, according to the Justice Department complaint, by stealing tax information for thousands of ultra-wealthy individuals, uploading it to a private website, and providing it to “News Organization 2,” where it became the source of nearly 50 articles.

News Organization 2 was ProPublica, which published articles about the tax returns of the wealthiest Americans such as Elon Musk, Jeff Bezos, and Mark Zuckerberg. This was also a public service. Information about how little tax the super-rich pay is even more important because it reveals the deep policy flaws of an income tax system that allows Warren Buffett to pay a lower tax rate than his secretary.

As economist Gabriel Zucman wrote recently, “In the 1960s, the 400 richest Americans paid more than half of their income in taxes. Higher tax rates for the wealthy kept inequality in check and helped fund the creation of social safety nets like Medicare, Medicaid and food stamps.” But as Zucman adds, “In 2018, America’s top billionaires paid just 23 percent of their income in taxes. For the first time in the history of the United States, billionaires had a lower effective tax rate than working-class Americans.”

It is only by examining tax returns that the public can understand why this happens and what can be done about it. That is why when the income tax only applied to the rich, Congress enacted tax return information disclosure provisions in the 1860s, 1920s, and 1930s, and why in countries with a stronger sense of egalitarianism but significant inequality, like Finland, Norway, and Sweden, most tax information is public, despite the concerns about privacy.

Under current law, disclosing tax returns is a crime, and Littlejohn pleaded guilty. Under the sentencing guidelines, his maximum sentence was ten months, but federal district judge Ana Reyes (a Biden nominee) sentenced him to five years, or six times the maximum sentence, on the grounds that others must be deterred from doing the same. In her remarks, astonishingly, she compared Littlejohn to some of the January 6th defendants.

This is…..a massive miscarriage of justice. Look, I guess you need to make sure that everyone’s tax returns are completely private (although I am honestly not sure why now that I think about it), but six times the maximum sentence? Comparing someone like this to people who launched the first coup attempt in American history? From a Biden-appointed justice? Yeah, it’s a real wonder Democrats are hopeless in countering fascism.

For some additional context:

Littlejohn’s sentence is particularly harsh in comparison with some recent sentences meted out to blatant tax evaders. Consider, for example, the case of Alon Farhy. According to the D.C. Circuit, Farhy, seeking to fabricate losses to reduce his U.S.-reportable income, transferred more than $2 million to a sham foreign entity, which then transferred the funds to a bank account in the name of a Belize-based corporation Farhy created solely for that purpose.

Farhy’s scheme violated a variety of tax-related obligations beyond his duty to correctly report and pay the income tax he owed. The DOJ entered into a non-prosecution agreement with Farhy immunizing him from criminal prosecution in exchange for paying his taxes plus interest and penalties. He then had the chutzpah to contest the penalties on technical legal grounds.

Many other cases involving tax evasion do not result in jail time. For example, Raj Mukhi ran a business that manufactured and sold professional uniforms in many countries. He was indicted in 2014 for hiding the proceeds in Clariden Leu, a private bank based in Zurich. He pleaded guilty to one count of filing a false tax return and one count of failing to disclose a foreign bank account and was sentenced to three years of supervised release.

Even if there is a prison sentence, it is usually much shorter than five years. Just in the last couple of months, an Oklahoma man who instructed a payroll company working with his business to falsely characterize over $2.6 million as reimbursements rather than income was sentenced to 30 months. An Indiana woman who electronically filed false income tax returns for clients that reported fictitious businesses, and also filed a false tax return for herself that underreported gross receipts from her business, was sentenced to 21 months. A New Jersey man was sentenced to 29 months for evading taxes and not filing income tax returns while earning over $2.5 million in wages. All of these cases involve conduct that is much more culpable and less public-spirited than Littlejohn’s.

There are several reasons why tax evaders should be punished more severely than leakers, not less severely as in the cases mentioned above. First, tax evaders cause actual revenue loss to the government, and the severity of the sentence is linked to the size of the loss. Tax leakers like Littlejohn do not cause any revenue loss.

Second, prison sentences for tax evaders do have a deterrence value because unlike leaked tax returns, it is hard for the IRS to discover the conduct. Small businesses are particularly hard to audit because there is no withholding or information reporting on their income, and even when there is information reporting like in some of the above cases, it is not easy for the IRS to detect false W-2s and W-4s. Prison sentences where the IRS does discover the conduct may have an effect in persuading other taxpayers not to do the same.

There is a big difference between leaking tax information and tax evasion in the size of the universe of potential violations and the number of violators escaping punishment. The number of potential violators leaking tax information is infinitesimal compared to the universe of potential tax evaders. And the number of potential violators escaping punishment for leaking tax information is close to zero, whereas the number of evaders escaping punishment is huge.

This is just massively out of proportion to the crime and it sounds like the entire Biden administration pushed for such a sentence.