President Joe Biden called on Congress to expand Internal Revenue Service funding so they go after wealthy taxpayers. A US Treasury Department report said many rich Americans hide their real income.
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Raise $700 Billion From Wealthy Taxpayers
The Treasury Department reported that the Biden administration wants to raise $700 billion. This comes in the form of additional tax revenue over a decade. Specifically, the White House wants to improve the enforcement abilities of the IRS. However, Republican lawmakers criticized Biden’s high target. In particular, tax analysts said that the president’s estimate remains unrealistically high.
The additional revenue will help fund Biden’s $4 trillion spending programs. Consequently, he wants to raise corporate taxes from 21% to 28%. In addition, he also wants wealthy taxpayers to pay more. They will shoulder the bulk of his proposed infrastructure and social programs.
Increased Transaction Reports
In addition, Biden called for additional IRS auditors and upgraded IT systems. This will allow them to increase their output auditing transactions. “The IRS will be able to deploy this new information to better target enforcement activities, increasing scrutiny of wealthy evaders and decreasing the likelihood that fully compliant taxpayers will be subject to costly audits,” the Treasury said of the proposed reporting requirements.
In addition, the Biden administration is increasingly targeting income from small businesses, rental properties, and other so-called pass-through entities. Reports estimate that the tax gap, or the difference between taxes owed and those paid, will reach $7 trillion by 2030.
GOP Warns Against Government Overreach
While both sides of Congress endorsed stronger tax enforcement, GOP lawmakers warned against government overreach. In particular, they called out the dangers of excessive account-flow reporting.
Meanwhile, congressional rules can limit the extent of applying Treasury estimates to Biden’s spending plans. At present, the Treasury wants to require banks and financial institutions to report account flows. This is information currently beyond the grasp of the IRS’s mandate. By allowing the IRS access to account flows, pass-through income, the IRS can now check if these are taxable like wages. In particular, the department estimates that taxpayers only report 45% of their income that remains invisible to the IRS. Meanwhile, 99% of employee wages are compliant with tax rates because the IRS requires employers to report it.
Well-positioned to Create Tax Shields
Additionally, the Treasury believes that wealthy taxpayers and their advisers are well-positioned to shield untaxed income. These include pass-through income, whose ultimate owner is difficult to trace. Also, capital income flowing to offshore accounts can also be difficult to trace. The gap between taxes owed and those paid for partnership, S-corporation, and proprietorship income is “estimated at around $200 billion annually with the net misreporting percentage for certain income categories exceeding 50%,” the Treasury said.
Funding For the IRS
To increase IRS audits, Biden wants additional funding of $80 billion to hire new specialized audit staff and upgrade IT systems. Consequently, the infusion will raise $320 billion in revenue long term. $80 billion will allow the agency to hire 87,000 new employees by 2031. This will virtually double the agency’s workforce.
Ultimately, the Treasury’s proposals will raise nearly all of Biden’s target of $700 billion this decade and $1.6 trillion by 2040. However, conservative estimates like the Penn Wharton Budget Model projects a much lower return at $480 billion over a decade.
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