How Biden can raise more from rich without tax hike
Onthecampaigntrail,JoeBidenarguedfor higher taxes on Americans who make more than $400,000 a year. Those tax increases, he said, would help fund his broader agenda and reduce inequality.
ButdependingontheoutcomeofGeorgia runoff electionsnext month, as president he will face either a GOP Senate majority that is dead set against tax increases, or a very narrow Democratic majority that will need to choose its battles carefully.
That will present him with a political conundrum: How do you raise more money from the wealthy if you can’t raise tax rates? One potential answer is better enforcement of existing tax laws.
Tax experts have long identified a large “tax gap” between the amount Americans owe and what is actually collected. This is disproportionately a result of underpayment of taxes by high earners, especially in certaintypesofcloselyheldpartnershipsand midsize businesses that face little scrutiny from either the Internal Revenue Service or outside investors.
That is exactly the type of structure — includingdubiousdeductions— thatallowed PresidentDonaldTrumptominimizehistax bill for years, according to reporting on the president’s taxes by The New York Times.
The IRS’ budget has declined in inflation-adjusted terms, and the agency has directed more of its enforcement work toward verifying eligibility of those claimingataxcreditforlow-incomeworkers.
The rich,asaresult,gotlessattention.In2018, less than 7% of tax returns showing more than $10 million in income were audited, down from about 30% in 2011, according to IRS data.
That has made it easier for people to get away with questionable or illegal tax strategies.
The Congressional Budget Office, in a report this month on options that Congress might consider for reducing the budget deficit, estimated that by increasing the IRS enforcement budget by $20 billion over the nextdecade, thegovernmentwouldincrease tax collections by $60.6 billion, meaning it would reduce the deficit over that span by about $41 billion.
Some who have closely studied the question believe that more IRS enforcement would generate an even greater payoff to the Treasury. Charles Rossotti, a former IRS commissioner; NatashaSarin, aUniversityof Pennsylvaniaprofessor; andLarrySummers, a former Treasury secretary, have projected that an additional $100 billion in enforcementspending, combinedwithadjustments to the agency’s tactics and strategy, would generate $1.2 trillion to $1.4 trillion more in taxescollected, primarilyfromhigh-income individuals.
“The IRS doesn’t have the resources it needs to go after the big fish,” Sarin said.
“That puts undue burden on everyone else.”
Biden could take administrative steps to shift enforcement priorities connected to the IRS’ technology usage and its hiring and allocation of current workers. But for substantial new investment or enforcement action, it would need Congress to agree to new funding.It may be easier to find at least some Republican support for stronger efforts at enforcing existing tax law than for raising tax rates. Notably, the IRS commissioner, Charles Rettig, a Trump appointee, has repeatedly pushed for more funds and described the need to reduce the tax gap, including for high earners.
Rossotti, the former IRS commissioner, said: “The idea is to shore up the system and make it more fair to everyone.” It’s unlikely you could get outright tax increases of any real size, but this is about the soundness of the tax system.”
ButdependingontheoutcomeofGeorgia runoff electionsnext month, as president he will face either a GOP Senate majority that is dead set against tax increases, or a very narrow Democratic majority that will need to choose its battles carefully.
That will present him with a political conundrum: How do you raise more money from the wealthy if you can’t raise tax rates? One potential answer is better enforcement of existing tax laws.
Tax experts have long identified a large “tax gap” between the amount Americans owe and what is actually collected. This is disproportionately a result of underpayment of taxes by high earners, especially in certaintypesofcloselyheldpartnershipsand midsize businesses that face little scrutiny from either the Internal Revenue Service or outside investors.
That is exactly the type of structure — includingdubiousdeductions— thatallowed PresidentDonaldTrumptominimizehistax bill for years, according to reporting on the president’s taxes by The New York Times.
The IRS’ budget has declined in inflation-adjusted terms, and the agency has directed more of its enforcement work toward verifying eligibility of those claimingataxcreditforlow-incomeworkers.
The rich,asaresult,gotlessattention.In2018, less than 7% of tax returns showing more than $10 million in income were audited, down from about 30% in 2011, according to IRS data.
That has made it easier for people to get away with questionable or illegal tax strategies.
The Congressional Budget Office, in a report this month on options that Congress might consider for reducing the budget deficit, estimated that by increasing the IRS enforcement budget by $20 billion over the nextdecade, thegovernmentwouldincrease tax collections by $60.6 billion, meaning it would reduce the deficit over that span by about $41 billion.
Some who have closely studied the question believe that more IRS enforcement would generate an even greater payoff to the Treasury. Charles Rossotti, a former IRS commissioner; NatashaSarin, aUniversityof Pennsylvaniaprofessor; andLarrySummers, a former Treasury secretary, have projected that an additional $100 billion in enforcementspending, combinedwithadjustments to the agency’s tactics and strategy, would generate $1.2 trillion to $1.4 trillion more in taxescollected, primarilyfromhigh-income individuals.
“The IRS doesn’t have the resources it needs to go after the big fish,” Sarin said.
“That puts undue burden on everyone else.”
Biden could take administrative steps to shift enforcement priorities connected to the IRS’ technology usage and its hiring and allocation of current workers. But for substantial new investment or enforcement action, it would need Congress to agree to new funding.It may be easier to find at least some Republican support for stronger efforts at enforcing existing tax law than for raising tax rates. Notably, the IRS commissioner, Charles Rettig, a Trump appointee, has repeatedly pushed for more funds and described the need to reduce the tax gap, including for high earners.
Rossotti, the former IRS commissioner, said: “The idea is to shore up the system and make it more fair to everyone.” It’s unlikely you could get outright tax increases of any real size, but this is about the soundness of the tax system.”
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