Biden’s version of MAGA: Make the IRS scary again

The government will try to collect an additional $400 billion in revenue over the next 10 years through an intimidation campaign the Internal Revenue Service is directing towards higher earners as part of a massive spending bill being pushed by President Joe Biden.

In fact, stepped-up collection efforts by the IRS constitutes the biggest source of revenue to fund the slimmer, yet still expensive, $1.75 trillion plan that the Democrat-controlled Congress will likely take up this week.

Deputy U.S. Treasury Secretary Wally Adeyemo claimed to Reuters that a renewed fear of being audited by the country’s powerful tax collection agency will allegedly lead to fewer wealthier Americans avoiding paying taxes.

There were several provisions and spending priorities cut from Biden’s bill, which was originally $3.5 trillion. However, a provision to spend $80 billion on the IRS to boost tax collection efforts has survived; if it is ultimately approved, the money will be used to hire thousands more revenue agents while also replacing outdated computer systems in the ensuing years.

Adding revenue agents, updating IT infrastructure, and undertaking complex audit cases all take time, said Adeyemo in an interview with Reuters. His hope is that the increased enforcement activity will cause wealthier earners to reconsider attempts to hide income in order to avoid having to pay taxes.

“When you are focusing on audits and people see that audits are happening — especially amongst people who are situated similar to them — you have better compliance,” Adeyemo noted on a trip to Philadelphia where he discussed the measure’s higher Child Tax Credit benefit.

“When they see more cops on the beat looking at tax returns, what people will decide is that it’s better to pay than to pay the penalty in the end,” he said.

Reuters added: “After years of budget cuts and underinvestment, largely under Republican-controlled Congresses, the IRS has 17,000 fewer revenue agents than a decade ago. The audit rate for individuals had fallen to 0.4% in fiscal 2019, half the 0.8% rate in 2015 and far below the 1.98% rate in 1977.”

Charles Rettig, the IRS commissioner who was appointed by then-President Donald Trump, said during Senate testimony in April his agency is “outgunned” by tax avoidance efforts that have become increasingly sophisticated, allowing high earners to underreport their business income and capital gains. The underreporting has left a large “tax gap” between what is owed and what is collected, amounting to as much as $1 trillion, he claimed.

Initially, the Treasury Department planned to use increased IRS enforcement measures to collect as much as $700 billion over the course of the next decade, or about 10 percent of the estimated $7 trillion gap in taxes.

“But that policy proposal relied on Congress approving new requirements for banks to report account inflows and outflows of as little as $600 per year to enable the IRS to find audit targets by matching account activity with reported income,” Reuters reported.

The low threshold alarmed many lawmakers who worried that Americans’ privacy regarding their financial transactions would be dramatically compromised. Banks, too, were opposed to the provision.

“The question becomes how do you use the resources of the IRS to verify and validate and where that is not possible to go out and ask questions. And we’ll have a bunch more people who can ask those questions,” Adeyemo said.

“We’re not going to be able to close the entire gap with these resources, but we do think that we’re going to make a significant dent,” he added.

Jon Dougherty


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