To help fund his American Families Plan, President Joe Biden has proposed going after wealthy Americans who evade taxes.
The administration has proposed sending $80 billion to the Internal Revenue Service over the next decade — a big boost compared to a current annual budget of about $12 billion.
This comes after years of disinvestment in the IRS and, as a result, vast underenforcement of tax laws. Between 2010 and 2020, the IRS reported that it eliminated more than 33,378 full-time positions, while IRS audits dropped by 42% between 2010 and 2017. Republicans have successfully pushed IRS budget cuts for years, slashing its funding by more than one-fifth in 10 years, according to the Center on Budget and Policy Priorities.
The share of returns for taxpayers making at least $1 million that face an IRS audit has dramatically plummeted over the last several years, according to the IRS' 2019 Data Book. The IRS noted in that report that audit rates from the last three years in the reported data are incomplete; those rates will very likely increase as new investigations are started in later years:
Wealthier Americans are much likelier to underpay or avoid taxes. That's in part because their sources of income are treated differently than lower- and middle-income Americans, who tend to be taxed on wages. In addition, the rich can afford hefty charges to pay lawyers and advisers to find loopholes and battle the IRS.
In recent years, the IRS has begun conducting many more audits of the working poor and many fewer of wealthy Americans, largely because it's much less complicated to audit a low-income individual. Americans who receive the Earned Income Tax Credit, who generally make under $20,000, are currently audited at about the same rate as millionaires, ProPublica recently reported. In 2019, almost half of the returns the IRS looked at were for individuals who qualified for the EITC.
The White House is placing IRS enforcement at the center of his efforts to raise revenue for Biden's latest $1.8 trillion plan.
Administration officials project the government can collect $780 billion over a decade from the IRS cracking down on tax evasion. But that would still leave hundreds of billions of dollars on the table every year, as Insider's Ayelet Sheffey reported. IRS Commissioner Chuck Rettig recently told Congress that Americans are likely evading $1 trillion in taxes annually — or more. Senate Democrats are pressing to bulk up the IRS' funding so it can gather taxes owed to the government.
"If you're a nurse taking care of COVID patients, you can't defer paying your taxes," Sen. Ron Wyden of Oregon said in a statement. "But if you're high flier, you can defer, pay far lower tax rates than the nurse, or pay nothing at all."
Former President Donald Trump, who's facing multiple criminal investigations for tax fraud, has famously attacked the IRS for treating him "very unfairly" and "very badly." While a candidate and as president, Trump repeatedly claimed that he couldn't make his tax returns public because he was undergoing a decade-long audit, despite the fact that there is no law barring him from releasing his tax documents while under audit.
