- Senators on both sides of the aisle agree that the IRS should be funded in new spending.
- Sen. Angus King told Insider “there’s a lot of money we’re leaving on the table” and he understands “going after tax cheats” is part of a deal.
- Sen. Rob Portman, a prominent GOP lawmaker, said a $40 billion investment would go a long way.
- See more stories on Insider’s business page.
As bipartisan infrastructure talks plod on, funneling money to beef up IRS enforcement looks like it’ll be sticking around.
Sen. Angus King, an independent of Maine who caucuses with the Democrats, told Insider on Tuesday that deciding what pay-fors make it into the final package is difficult – but suggested that funding for IRS enforcement will remain.
“I understand going after tax cheats is part of it,” King said. “There’s a lot of money we’re leaving on the table right now.”
The bipartisan Senate group of 10 – evenly divided between Republicans and Democrats – is working on a $1 trillion package. Sen. Rob Portman of Ohio, a prominent lawmaker in the group, told reporters Tuesday that money to bulk up the IRS’s ability to enforce tax laws would be included in the nascent framework.
The IRS officially estimates the “tax gap” coming in at $441 billion a year. But Charles Rettig, the agency’s commissioner, told Congress in April that the number could actually be over $1 trillion.
This gap between taxes owed and taxes paid could only grow if left without intervention, according to the Treasury Department, which estimates that President Joe Biden’s proposed $80 billion investment in the IRS could bring in an additional $700 billion over 10 years. That would still leave hundreds of billions in taxes going uncollected each year, Insider’s Ayelet Sheffey reports.
The bipartisan approach to IRS enforcement might not go that high.
“We have a CBO estimate that, if you put about $40 billion into bringing back the IRS workforce … that could result in $110 billion – which nets out to $63 billion,” Portman said on Tuesday. “It’s a relatively modest increase in IRS spending compared to what the Democrats proposed under Biden’s plan.”
The number of agents devoted to working on sophisticated tax evasion enforcement has fallen by 35% over the last decade, according to Treasury and the IRS budget has fallen by 20%, while audits fell by 42% from 2010 to 2017. According to a White House fact sheet, the audit rate for those making over $1 million a year declined by 80% from 2011 to 2018.
Biden wants to ramp up enforcement on the wealthiest Americans. A recent study from IRS researchers and academics found the top 1% of Americans fail to report about a quarter of their income. Income underreporting is nearly twice as high for the top 0.1%, which could account for billions unreported.
The role of IRS enforcement is coming into greater relief following a bombshell ProPublica report, which revealed just how little in proportional taxes some American billionaires pay. The tax mechanisms that those billionaires utilize are actually completely legal, but they’ve kickstarted talks of tax reform among Democrats.
Following the ProPublica report, five former treasury secretaries published an op-ed in The New York Times saying that, “in the ways outlined by President Biden’s recent proposal,” more enforcement could be pursued.
The five former treasury secretaries – who served under both Democratic and Republican presidents – write: “But on this issue, all should agree, including members of Congress of both parties: Giving the I.R.S. the tools it needs to improve compliance will raise significant revenue and create a fairer, more efficient system of tax administration.”