By Richard Rubin
WASHINGTON -- Tougher tax enforcement is one of the least
controversial pieces of President Biden's economic agenda, a way to
raise revenue without raising taxes. As the Biden plan advances,
there are crucial open questions on how much money it will generate
and how well the Internal Revenue Service will implement it.
The administration has said its multipronged approach -- costing
$80 billion over a decade for enforcement staff, technology and
information-gathering from Americans' bank accounts -- could net
The Biden administration's search for a bipartisan deal to
finance about $4 trillion in infrastructure spending, family
benefits and other priorities is leading lawmakers to focus on tax
enforcement. While Republicans aren't fully sold on the
administration's IRS plan, they aren't implacably opposed to the
general idea. House Speaker Nancy Pelosi (D., Calif.) said the
topic came up when Mr. Biden met top congressional leaders
Wednesday as Republicans repeated their opposition to raising taxes
on corporations and high-income households.
"So what other pay-fors are there?" Mrs. Pelosi said Thursday.
"Some other sources of funding include the people who are not
paying taxes," she added.
The IRS, shrunken after years of flat budgets, would face
serious challenges hiring and training skilled workers and
reversing declining audit rates. Once legislation is written,
official congressional estimates could be more conservative than
administration projections, and lawmakers are still figuring out
where they agree.
"There's real money here," said Rich Prisinzano, director of
policy analysis at the Penn Wharton Budget Model, a research group
that estimates that the administration's plan could produce $480
billion over a decade and another $879 billion in the five years
"Whether it's $700 billion or $500 billion in 10 years is
unclear," said Mr. Prisinzano, who is less sanguine about the
deterrent effects of tax enforcement than the administration is.
"It's definitely more than $1 billion."
The threshold question is this: How much money is there? How big
is the tax gap, the difference between taxes owed and taxes
That is notoriously difficult to answer as researchers seek to
measure what is often purposely hidden. Officially, the IRS
projects the gap at $441 billion annually for the tax years 2011
through 2013 and $381 billion after counting revenue from
enforcement efforts. That represents an 84% voluntary compliance
rate and an 86% rate after enforcement.
Given inflation, the tax gap is higher now, but there are no
official estimates. The administration's plan, using estimates from
career Treasury Department staff members, assumes that it is more
than $7 trillion over a decade and that 10% of that would be
IRS Commissioner Charles Rettig told Congress last month that
the gap could be nearing $1 trillion annually. He has cited
increasing use of cryptocurrency to hide income as well as a paper
from IRS and academic authors saying the top 1% of taxpayers hide
more income offshore and through complex partnership structures
than previously thought.
A new rebuttal from economists at the congressional Joint
Committee on Taxation and the Treasury Department -- not writing in
their official capacity -- argues that the original paper
overstates noncompliance. That paper's authors are working on a
response and say their initial estimates might underestimate tax
Sen. Mike Crapo (R., Idaho), the top Republican on the Finance
Committee, said he wanted to better understand the estimates
"I want to find out what the true tax gap is, why that tax gap
exists, what are the causes of it, and I'm fully willing to try to
find some ways to address that," he said.
There is little dispute that additional enforcement -- more
audits, more collections staff -- would produce more revenue than
The Congressional Budget Office said last year that a $40
billion, 10-year expansion of IRS enforcement would yield $63
billion to pay for other initiatives. The administration's proposal
would add $80 billion to the IRS over a decade, doubling the
enforcement staff and generating $240 billion and even more beyond
the 10-year budget window, according to the Treasury
Estimates depend on assumptions about how fast the IRS can hire
and how long it takes for employees to operate at full strength.
Once that happens, audits take time, and high-income taxpayers and
businesses can fight, creating a lag before money hits government
That lead time means there is plenty of room to increase
enforcement before experiencing diminishing returns, Mr. Prisinzano
The IRS needs more people but also a change in approach, said
former commissioner Charles Rossotti. Nina Olson, the former
national taxpayer advocate, said the IRS needs to improve service
to help taxpayers who want to comply but struggle to do so.
"If you just scale up what they're doing now, it's so
inefficient that you're never going to get a big result," Mr.
At a hearing this week, Sens. John Thune (R., S.D.) and Steve
Daines (R., Mont.) said Republicans were open to discussing more
"Any increase to the agency should come with commensurate
accountability and transparency," Mr. Thune said.
What is harder to figure out is how much money could come from
requiring banks and payment-system providers to report annual flows
in and out of accounts. That is the second major prong of the Biden
proposal; the administration says it yields the remaining $460
billion for a total of $700 billion.
The basic idea: When taxpayers know the IRS has more third-party
information about their finances, they are more likely to be
Republicans are starting to resist such a requirement.
"Most Americans would reject the notion that we should let those
who we deal with in financial transactions disclose our personal
private, privacy information," Mr. Crapo said.
Also, the information would require significant analysis and
While a W-2 is easy to match against tax returns, the annual
difference between money coming into a bank account and going out
isn't necessarily income. It could just be a first indicator for
"It's not a perfect lens, and we don't think that we're going to
close the entire tax gap," Kimberly Clausing, a deputy assistant
Treasury secretary, said at a conference Thursday.
This money wouldn't just come from the wealthiest households but
from a broader cross-spectrum, including small-business owners who
Moreover, the IRS would need to digest the large new data stream
and use it to determine who should be audited.
"Each of those iterations requires the absorption and the
processing and the editing of that information," said Janet
Holtzblatt, a former CBO official now at the Tax Policy Center, a
project of the Brookings Institution and the Urban Institute. "In
the past, the IRS has not quickly gotten through that first
--Andrew Duehren contributed to this article.
Write to Richard Rubin at email@example.com
(END) Dow Jones Newswires
May 14, 2021 09:14 ET (13:14 GMT)
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