WASHINGTON – The Biden administration says wealthy Americans withhold more than $ 600 billion in unpaid taxes from the treasury each year, and he has proposed a detailed plan to strengthen the Internal Revenue Service’s enforcement arm in an effort to improve tax compliance among high net worth individuals. .
Total unpaid taxes “will rise to about $ 7 trillion over the next decade if left unaddressed, or about 15% of taxes owed,” a report released by the Treasury Department said Thursday. “These unpaid taxes come at a cost to American households and obedient taxpayers, as policymakers choose growing deficits, lower spending on needed priorities, or further tax increases to make up for lost income.”
Improving the IRS’s ability to track down tax evaders will generate an estimated $ 700 billion in additional revenue over 10 years, and much more in the years to follow, according to the administration.
Tax evasion is an international fact of life. The administration’s estimate that the United States loses about 15% of the tax revenue owed to it in the event of non-compliance puts it at a similar level to 16% in the European Union, according to a study conducted at the University of London. The study found that in the EU, just over $ 1 trillion in taxes was not collected in 2015.
Experts said the Treasury Department’s estimate of uncollected taxes is reasonable, and its belief that it can improve tax compliance through increased enforcement is plausible. However, they cautioned that it won’t be like you flip a switch.
It won’t happen overnight
“It’s going to take time,” said Howard Gleckman, senior researcher at the Urban-Brookings Center for Fiscal Policy. “As they increase the staff, they will do so gradually over a period of several years. The people who worked at the IRS, who know this place very well, say it takes five years to train an auditor – especially when you look at the kind of very sophisticated tax evasion that the IRS seems to want to look at. So yeah, I think they can raise that kind of money, but I think no one should expect that they can do it overnight. “
Others were less sure.
“I would say, at first glance, I think it sounds ambitious,” said Alex Muresianu, federal policy analyst at the Tax Foundation in Washington. “I think on the sidelines, doing better IRS investigations and doing a better job of enforcing the laws that we have is a good way to increase revenue. But I am not sure that this large budget increase will be used as effectively as they hope. “
Fundraising Plan for American Families
While reforming the country’s tax compliance regime can be seen as a goal in its own right, the Biden administration released the plan amid its push for the U.S. Plan for Families, a legislative proposal that would invest in affordable child care, free education, increased availability. family and medical leave and child tax credits.
However, Gleckman said, the money raised by the Treasury will not be enough – or will come soon enough – to fund the $ 1.8 trillion plan.
“If members of Congress believe that reducing the tax gap will pay for [it], they dream, ”he says. “It’s a good thing to do. This is good for maintaining the credibility of the tax code and it will generate a significant amount of money. But that won’t pay for a trillion dollar infrastructure bill. They want to do this, they are going to have to raise somebody’s taxes.
The administration’s plan has four main elements, the most important of which is the addition of $ 80 billion in funding to the IRS budget over the next decade. The agency’s budget has been slashed by 20% over the past decade, resulting in a loss of experienced staff and a reduction in the number of lower-level IRS officers climbing the agency’s ladder.
The proposal also provides for funds to overhaul the agency’s data management. The current IRS system is the oldest in the federal government, with elements dating back to the 1960s, written in an outdated programming language.
Additionally, the agency will crack down on unregulated tax preparers, increasing penalties for aiding and abetting tax evasion.
Collection of bank account data
The fourth element of the administration’s plan, which causes concern, is a proposal to force banks and other financial institutions to dramatically increase the amount of information they provide to the IRS.
In addition to reporting interest payments above a certain threshold, the administration plans to require banks and financial services companies to “report gross inflows and outflows on all business and personal accounts of financial institutions, including including bank, loan and investment accounts, but excluding exceptions for accounts below a low de minimis gross flow threshold. “
A coalition of banking trade groups expressed opposition to the plan earlier this month, writing in a joint letter that it would “impose costs and complexity that are not justified by the potential and highly uncertain benefits” and could expose customer data to abuse.
“We support efforts to increase compliance so that all taxpayers meet their responsibilities, but put financial institutions in the position to report more information about their account holders – especially when the benefits fall short. ‘being certain – is not the solution,’ the groups wrote.
Gleckman, of the Tax Policy Center, raised additional concern that the IRS might not have the ability to effectively use the data.
“They ask for so much information, information about deposits and withdrawals for every bank account,” he said. “The IRS is already struggling with its ability to manage the data it has. This will give them billions of additional data. “