Elizabeth Warren Goes After Rich Tax Cheats
IRS reform bill would guarantee base-budget funds for enforcement efforts
President Biden's struggling with congressional Republicans over a modest tax increase on well-to-do Americans to find his American Jobs Plan.
Meanwhile, the federal government loses more than $1 trillion a year as a result of the top 1 percent of Americans failing to report more than a fifth of their income on their tax returns, and accounting for more than a third of all unpaid federal income tax.
That's according to a recent study.
This underreporting has helped drive the tax gap -- the difference between taxes owed and taxes paid -- to exceed an estimated $1 trillion annually.
Sen Elizabeth Warren (D-Mass) has stepped in to do something about it.
A member of the Senate Finance Committee, Warren introduced the Restoring the IRS Act of 2021,which would provide the Internal Revenue Service (IRS) with resources to go after wealthy tax cheats and close the tax gap.
The bill would rebuild and strengthen the IRS by permanently removing the IRS's base budget from the annual appropriations process and providing $31.5 billion in mandatory annual funding. This funding will allow the IRS to fairly enforce the tax code, modernize its information technology systems, and improve taxpayer services, according to a statement from Warren's office.
Recent analyses estimate that stepped-up IRS enforcement could produce as much as $1.75 trillion in revenue over 10 years.
"For too long, the wealthiest Americans and big corporations have been able to use lawyers, accountants, and lobbyists to avoid paying their fair share — and budget cuts have hollowed out the IRS so it doesn't have the resources to go after wealthy tax cheats. The IRS should have more -- and more stable — resources to do its job, and my bill would do just that," said Sen Warren.
More than a decade of politically motivated budget cuts, however, have hampered the IRS's ability to perform its core duties — especially enforcement focused on the ultra-rich. Since 2010, the IRS enforcement budget has declined by more than 20 percent, and the agency has lost one-third of its enforcement personnel.
As enforcement resources have declined, so have the agency's audits of millionaires and giant corporations. Audit rates for the very wealthiest taxpayers, those with incomes over $10 million, are nearly 80 percent lower than they were a decade ago, while audit rates for corporations with more than $20 billion in assets have fallen by nearly half.
Strengthening the IRS's ability to go after wealthy tax cheats will not only require more funding but more stable funding. Mandatory funding for the IRS would provide funding on an ongoing basis, ensuring that the IRS budget is steady, predictable, and sustained. IRS Commissioner Charles Rettig recently testified that mandatory, multiyear funding would help the IRS crackdown on wealthy tax dodgers. In addition to more funding, strengthening information reporting would help the IRS verify wealthy individuals' incomes and make it more difficult for them to hide their income.
A 2016 study by the Treasury Department estimates that every $1 invested in IRS enforcement could yield $24 in additional revenue, including a nearly $6 direct return in revenue collection, as well as an indirect deterrence effect estimated to be at least three times the direct revenue impact. Recent analyses estimate that stepped-up IRS enforcement could raise as much as $1.75 trillion over 10 years.
The Restoring the IRS Act would provide the IRS with the resources it needs to go after wealthy tax cheats and close the tax gap.The bill would rebuild and strengthen the IRS by permanently removing the IRS's base budget from the annual appropriations process and providing $31.5 billion in mandatory annual funding -- more than double the IRS's budget in 2010 (adjusted for inflation), according to estimates from Warren's office. This funding would allow the IRS to fairly enforce the tax code, modernize its IT systems, and improve taxpayer services.
The bill would also improve tax compliance by:
Requiring new third-party reporting from financial institutions to help the IRS verify tax filings for taxpayers with less visible income streams — without adding any burden on individuals
Requiring the IRS to create a plan, and report annually on implementation progress, to shift audits towards high-income, high-wealth tax filers and corporations
Requiring the IRS to report annually on the tax gap, and how additional information reporting requirements could further close the tax gap
Requiring the IRS to conduct an analysis of racial disparities in the agency's enforcement activity
Increasing penalties for underpayment for taxpayers with income above $2 million
Applying the False Claims Act to misstatements on tax returns for taxpayers with income above $10 million