Senator Elizabeth Warren is proposing to nearly triple the Internal Revenue Service’s budget to help identify wealthy individuals who are cheating on their taxes.
The Massachusetts Democrat is proposing to give the IRS a mandatory annual budget of $31.5 billion, up from the $11.9 billion the agency received from Congress for fiscal year 2021. Warren’s legislation would remove the agency’s funding from the annual appropriations process, so that it wouldn’t change based on the year-to-year whims of Congress.
“Strengthening the IRS’s ability to go after wealthy tax cheats will not only require more funding, but more stable funding,” Warren said in a summary of the legislation released Monday. “Mandatory funding would provide funding on an ongoing basis, ensuring that the IRS budget is steady, predictable, and sustained – money that lobbyists can’t easily strip away.”
Warren’s legislation includes many ideas similar to the IRS enforcement provisions President Joe Biden included in his “American Families Plan,” which featured an $80 billion cash infusion over a decade into the IRS. The Treasury Department estimates added enforcement could capture an additional $700 billion in tax dollars.
Improving IRS enforcement has become a top priority for Democrats, who say it is a way to find revenue for infrastructure and other spending priorities without raising tax rates. Outside think tanks and tax experts have questioned the amount Biden says his plan would raise, even as the Treasury contends the estimate is “conservative.”
Warren’s “Restoring the IRS Act” would give the tax collector even more money than Biden’s proposal. The plan would do more to focus on racial and income inequities in the IRS enforcement process and require the agency to gather more information on wealthy taxpayers.
The progressive Democrat did not provide a total revenue estimate for her bill, but cited a study that concluded tax collectors could raise an additional $1.75 trillion over a decade by stopping tax evasion from the top 1%.
She also cited a Treasury study that found the IRS can collect $6 for every $1 invested in audits, though that figure climbs to $24 after factoring in increased compliance because of higher audit risk. The Treasury released separate figures last week that said it could recover at least $4 for every additional audit dollar.
The money would help the agency enforce the tax laws, upgrade IT systems that date back to the 1960s and improve taxpayers services, the bill outline said. The agency has struggled to meet basic taxpayer needs in recent years – with roughly 2% of calls to the IRS’s tax return help hotline being answered this spring.
The legislation would also require financial institutions to report account flows from wealthy clients that don’t already have their incomes reported to the IRS by third parties, similar to a plan that Biden has proposed. The IRS would be required to shift audits to high-income individuals, analyze racial disparities in their enforcement activities and increase penalties for underpayment for those earning at least $2 million.
The IRS would also be required to report annually on the difference between the taxes owed and the taxes actually paid, a figure known as the tax gap. The IRS currently reports this figure every few years, but the totals can often be outdated by the time they are released. The most recent tax gap estimate is $381 billion for the period of 2011-2013. IRS Commissioner Chuck Rettig recently told a congressional panel that figure may have swelled to approximately $1 trillion annually due to tax evasion from offshore activities and cryptocurrency.
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