WASHINGTON – President Biden, advocating his ambitious economic agenda and shifting more of the country’s tax burden to the rich, will propose granting the Internal Revenue Service an additional $ 80 billion and more powers over the next 10 years to help Tackling taxes will help avoidance by high earners and large corporations.
The extra money and enforcement powers will come with new disclosure requirements for individuals who own businesses that are not organized as corporations – like many law firms and real estate partnerships – and for other high earners who may be hiding income from the government. Mr. Biden’s goal is to raise hundreds of billions of dollars in childcare, education, and other programs that make it harder for high-income Americans to evade or avoid taxes.
If the president is successful, people who earn more than $ 400,000 a year are more likely to get a tax audit regardless of how much income they report on their tax forms, said one person familiar with the plan.
Strengthening the IRS is one of several proposals that Mr Biden will make at a joint congressional session on Wednesday. His administration will portray these efforts – along with new taxes it is proposing for businesses and the rich – as a way to balance the tax playing field between typical American workers and very high earners who make sophisticated efforts to minimize or avoid taxes.
The $ 80 billion spread over a 10-year period would be nearly a 70 percent increase over the agency’s overall funding levels over the past decade. The government estimates that this financial boom could generate additional tax revenue of $ 700 billion over the next decade. Mr. Biden plans to use money raised through efforts to cover the cost of his American Families Plan, which he will announce to lawmakers on Wednesday.
This plan, following its $ 2.3 trillion infrastructure package, is expected to cost at least $ 1.5 trillion and include the universal front yard, federal paid vacation program, efforts to make childcare more affordable, free community college for all and tax credits to fight poverty include.
To help fund these expenses, the government also wants to raise the highest marginal tax rate for wealthy Americans from 37 percent to 39.6 percent and increase tax rates on investment income for those who make more than $ 1 million a year. According to one person familiar with the proposal, Mr. Biden will also seek to increase the tax rate on income received through stock dividends for individuals who earn more than $ 1 million a year.
However, the government believes that its efforts to invest heavily in a tax agency that has steadily lost staff and partially stuck in 1960s information technology will generate more revenue than any single tax hike by making it harder for high-wage earners to find themselves to hide income not earned from wages. While tax legislation has become more complex over the past decade, the agency’s budget and staffing have not kept pace.
Democrats on Capitol Hill have been pushing for more IRS funding for years. However, some Conservatives say that additional enforcement spending could quickly lead to a political backlash, especially from high-income small business owners, who could become audit targets more often.
Republicans have repeatedly criticized the agency in the Obama administration for targeting conservative political groups, including several members of the Tea Party, for tax audits. A federal guard concluded in 2017 that IRS officials had approached not only conservative but also liberal groups to question their claims to tax exemptions.
Many economists and tax professionals welcomed the proposal, which would help undo years of declining enforcement actions against businesses and the rich in the agency.
“The plan is good news for honest applicants and businesses, the budget and the rule of law,” said Chye-Ching Huang, executive director of the Tax Law Center at NYU Law. “If we prevent tax evaders from gaining an unfair advantage, honest businesses can compete and thrive.”
Previous governments have long talked about tackling tax evasion. Earlier this month, IRS head Charles Rettig told a Senate committee that the agency lacked the resources to catch tax fraud, including those that hide cryptocurrency revenues that cost the government up to $ 1 trillion a year.
The erosion of resources at the IRS was described last year in a report by the Congressional Budget Office that examined the agency’s work from 2010 to 2018. During that time, the IRS’s annual budget decreased 20 percent and its staff decreased 22 percent. Enforcement funding fell by almost a third.
With less money and less staff, the IRS has been forced to become more sloppy in enforcing tax laws. According to the Congressional Budget Office, the audits of the individual tax returns decreased by 46 percent and the audits of the corporate tax returns by 37 percent.
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April 27, 2021 at 5:49 p.m. ET
The top percent of the workforce has been audited far less often in recent years. That’s because they are far more likely than low- or middle-income Americans to make money from businesses, capital gains, and other sources of income that are non-wages. Research has shown that almost all wages are correctly reported to the agency. Capital and business income are more likely to be underreported.
Mr Biden wants to change that. His economics team includes a University of Pennsylvania economist, Natasha Sarin, whose research with Harvard University economist Lawrence H. Summers suggests that the United States could see up to 1.1 trillion US dollars in a decade from increased tax enforcement. Could collect dollars.
Mr. Summers praised Mr. Biden’s approach. “A deterioration in IRS enforcement efforts and information gathering is scandalous,” he said. “The Biden Plan would make the American tax system fairer, more efficient and, I am confident, generate more revenue than the official Scorekeepers now forecast – probably a trillion over 10 years.”
Mr Biden’s efforts would incorporate some of the suggestions made by Mrs Sarin and Mr Summers, including heavy investment in information technology improvements to help the agency better target its audits of high income earners and companies.
They would also provide the agency with a dedicated stream of funding so that officials can steadily expand their enforcement practices without fear of budget cuts and signal to potential tax evaders that the agency’s efforts are not going to wane anytime soon.
Mr Biden would also add new requirements for people who own so-called pass-through companies or who keep their assets in opaque structures, reminiscent of a program set up under President Barack Obama to help the agency better possible tax evasion by Americans with foreign interests to pursue.
Fred T. Goldberg Jr., an IRS commissioner under President George HW Bush, described Biden’s plan as “transformative” to combine these efforts.
“Reporting information along with restoring enforcement efforts is key to improving compliance,” Goldberg said in an email. “Audits alone will never be enough.”
He added, “None of this happens overnight. A decade of stable funding is required to recruit and train talent and build on the technology required – not just for compliance purposes, but to ensure the quality of service that the vast majority of compliant taxpayers expect and deserve. “
Some conservative tax activists are opposed to additional spending with the agency. Grover Norquist, the president of Americans for Tax Reform, a group opposed to all tax increases, said in an interview that additional enforcement money could increase the number of politically motivated audits while weighing on small business owners, with no guarantee of a large increase in revenues.
“Nothing says these guys are going to raise money,” he said. “The IRS has long been heavily politicized. You didn’t do anything to fix the problem. “
Tax professionals tend to agree that increasing the enforcement capacity of the IRS more than pays off, but it’s not clear how much is really needed when many of the agency’s functions can be automated and more tax returns filed electronically.
The Congressional Budget Office estimated last year that an additional $ 40 billion would add $ 103 billion to government revenues over 10 years. Administrative officials are confident that the real amount is much higher.
Proponents of strengthening IRS enforcement point to the billions of dollars the agency was able to get back despite limited resources, saying the amount could grow exponentially with adequate funding.
Last October, the IRS helped catch a Houston technology executive, Robert T. Brockman, on the case billed by prosecutors as the largest tax evasion case in American history. Mr Brockman has been accused of hiding US $ 2 billion in revenues from the IRS through a network of corporations and secret overseas bank accounts over a period of 20 years.
Earlier this month, the IRS announced that California-based executive director Michael Todd Lucas, who controlled several software development companies, did not pay wage taxes in full, despite withholding them from his employees. The IRS said Mr. Lucas, who pleaded guilty of tax fraud, did not pay wage taxes, penalties and interest of nearly $ 5 million.
Still, John Koskinen, who served as IRS commissioner under Presidents Barack Obama and Donald J. Trump, said he believed the $ 80 billion proposed by the Biden administration could be too much. The suggestion came as a surprise when it came from someone who loudly complained that the agency was starved when he was in charge.
“I’m not sure you can use that much money efficiently,” Koskinen said in an interview. “That’s a lot of money.”
Mr Koskinen said he thinks an additional $ 25 billion over a decade would help bring the IRS budget back to 2010 levels, allowing law enforcement officers lost to wear and tear and customer service skills to be hired to improve the agency.