Strengthening tax enforcement on the wealthy could raise $700 billion in 10 years, Treasury says
- Treasury says more funding for IRS enforcement could raise $700 billion over 10 years.
- The IRS has seen its budget and number of enforcement personnel fall in the last decade.
- Biden wants to invest about $80 billion over the next decade, and target the wealthiest Americans.
- See more stories on Insider’s business page.
Pouring more money into IRS enforcement could bring in an extra $700 billion in tax revenue over the next decade, according to the Department of the Treasury.
The agency was commenting on measures from President Joe Biden’s newly announced American Families Plan, specifically, its investment in the Internal Revenue Service of about $80 billion over the next decade. Charles Rettig, the agency’s commissioner, told Congress this month that enforcement personnel has fallen by about 17,000 over the past decade. Biden wants to reverse this, and allocate extra resources towards targeting the ultrawealthy.
A recent study from IRS researchers and academics found that the top 1% of Americans fail to report about a quarter of their income to the IRS, meaning they could be hiding billions. Income underreporting is nearly twice as for the top 0.1%.
Altogether, Rettig said there could be a tax collection gap of over $1 trillion a year; that’s far higher than the IRS’ official estimate of $441 billion a year. This gap between taxes owed and taxes paid could only grow if left without intervention, according to Treasury.
“This massive gap in revenue means policymakers must choose between higher taxes elsewhere in the tax system, lower spending on fiscal priorities, or rising budget deficits,” the agency wrote in a press release.
The Treasury’s estimate of collecting another $700 billion over the next decade means hundreds of billions will still likely go uncollected every year, as Insider’s Ayelet Sheffey reported.
Reforms could help the IRS fend off more sophisticated tax evasion; Treasury said the number of agents devoted to working on such enforcement has fallen by 35% over the last decade — and the organization’s budget has fallen by 20%, while audits fell by 42% from 2010 to 2017. Even more striking, according to a White House fact sheet, is the 80% decline in the audit rate for those making over $1 million a year from 2011 to 2018.
As Insider previously reported, there’s a whole industry devoted to helping America’s wealthiest hide away their money and dodge potential taxes.
The increased enforcement could be coupled with an increase in income taxes for households making over $400,000 a year, as well as an increase in the capital gains tax for investors making over $1 million a year. All told, the White House said its full tax package — including the corporate tax rate increase in the American Jobs Plan — should offset all of its investments within 15 years.
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