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President Biden will present his $ 1.8 trillion plan for American families to Congress tonight. He intends to partially offset the cost of the plan by investing $ 80 billion in the IRS to improve enforcement against the richest Americans.
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Portion of the funding will “revive enforcement to make the rich pay what they owe” rather than Americans with actual incomes less than $ 400,000. This plan would raise $ 700 billion over 10 years, according to a White House fact sheet.
“The Republicans starved the IRS so it couldn’t hunt for wealthy tax evaders. I have requested a $ 100 billion investment to rebuild and empower the IRS on my #WealthTax bill – this $ 80 billion announcement from President Biden is a good first step, ”Senator Elizabeth tweeted Warren.
According to the plan’s fact sheet, the funds made available to the IRS are intended to address the “two tier system of tax administration in this country”: regular workers pay the taxes they owe on wages, while some wealthy taxpayers aggressively plan to avoid tax law . “
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“Those with the highest incomes generate incomes in opaque categories where hoax can reach 55%. A recent study found that the top 1% did not report 20% of their income and did not pay over $ 175 billion in taxes they owed. But today the IRS doesn’t even have the resources to fully investigate this bypass. As a result of budget cuts, exam rates for those who earn more than $ 1 million a year fell 80% between 2011 and 2008. “
The move was welcomed by a number of economists and politicians, including Larry Summers, former Treasury Secretary under President Clinton, former director of the National Economic Council for President Obama and an economist at Harvard University, who said the plan could raise $ 1 trillion in 10 years. “The deterioration in IRS enforcement efforts and information gathering is scandalous. The @JoeBiden plan would make our tax system fairer, more efficient, and more profitable than the Scorekeepers now forecast – probably $ 1 trillion over 10 years, “he tweeted.
Senator Angus King called it a “fantastic, sensible move” in a tweet. “America leaves hundreds of billions of tax dollars on the table every year because the IRS does not have the resources to search for wealthy tax evaders. These funds will help all Americans pay what they owe.”
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“We should screen more wealthy tax evaders than poor grandmothers who claim a child as dependent,” California Congressman Ro Khanna tweeted yesterday. “I look forward to debating Republicans on this issue every day through 2022. It is time to properly fund the IRS and get the rich to pay their fair share.”
Khanna introduced a bill in February to prevent companies and higher earners from avoiding taxes and strictly enforcing rules (CHEATERS). It aims to generate $ 1.2 trillion in sales in 10 years by imposing IRS audits on the richest companies and individuals.
Senator Dianne Feinstein tweeted, “I asked the government to take this action because fighting tax evasion by big corporations and high earners could raise at least $ 780 billion.” It’s a smart investment. “
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Akhil Kumar, Partner and Chief Compliance Officer of Arch Global Advisors, told GOBankingRates that President Biden’s proposal is a “calculated political move to prosecute high net worth individuals who have avoided paying taxes in recent years. It is estimated that this group can generate over $ 700 billion in tax revenue. As I see it, the government could get a 10x return for every additional dollar sent to the IRS for enforcement. “
He adds that the proposed tax hike for those earning more than $ 400,000 a year who are considered high income “can be misleading.” “Depending on where you live in the US, $ 400,000 might not be a high income because the cost of living varies from state to state. For example, a family of four living in New York will need every penny of their $ 400,000 income to cover a mortgage, taxes, and living expenses, compared to the same expenses if they were based in a different part of the country. ”
However, some observers disapprove of the plan in its entirety, saying that increasing funding for auditing high-income earners will prevent the rich, or those earning more than $ 1 million, “from cheating because they don’t have to cheat ”. According to Tom Wheelwright, CPA and author of Tax-Free Wealth.
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“The tax law is a set of incentives, and the rich know where to find the incentives. In my experience, most of the actual fraud occurs at lower income levels, especially small businesses that operate on Schedule Cs, ”Wheelwright told GOBankingRates. “A better use of the IRS raise would be to provide better customer service to make the public feel fair about the system. Less than 20% of calls to the IRS are ever answered, and even tax professionals struggle to get someone to answer a simple question. “
Biden’s plan would also require financial institutions to report information about account flows so that investment and business income are reported as they are reporting wages. In addition, other resources would be focused on large corporations, corporations, land, and higher income individuals. “Overall, this plan would bring in $ 700 billion over a 10-year period,” the White House fact sheet said.
The IRS budget has decreased nearly 15% since 2011, and the enforcement budget has decreased 25% over that period, according to a research report by Summers and Natasha Sarin. Bidens Deputy Deputy Secretary for Economic Policy in the Ministry of Finance. “Because of this decline in enforcement resources, the IRS has fewer auditors today than it has at any time since World War II,” the report said.
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About the author
Yaël Bizouati-Kennedy is a retired full-time financial journalist and has written for several publications, including Dow Jones, the Financial Times Group, Bloomberg and Business Insider. She has also worked as a vice president / senior content writer for major NYC financial companies including New York Life and MSCI. Yaël is now freelance and most recently worked with Dr. Sean Manion is the author of Blockchain for Medical Research: Accelerating Trust in Healthcare. (CRC Press, April 2020) She has two Masters degrees, including one in Journalism from New York University and one in Russian from Université Toulouse-Jean Jaurès, France.