Does it even matter if our government tries to pay for the new federal spending in full? Despite decades of collective hand-wringing and countless political careers catapulted to new heights or smashed against the rocks, no one really seems to know the answer to this question.
One thing is for sure, though: Joe Biden’s agenda is a big deal, and his government has gone to considerable lengths to at least try to pay for it.
Biden definitely launched the idea of tax hikes to pay for ambitious new infrastructure initiatives and social programs, despite promising there won’t be any tax hikes for anyone making less than $ 400,000 a year. Recently, however, the focus has shifted from tax hikes to an often overlooked and increasingly promising source of income: forcing rich, educated taxpayers to pay what they already owe.
Ultimately, most people pay their taxes voluntarily and on time. The IRS estimates that 83.6 percent of American taxpayers will pay off the full amount they owe Uncle Sam when due.
But that’s 16.4 percent who don’t. Unsurprisingly, it’s not really the average W-2 wage earner who withheld taxes directly and automatically reported income who skips the bill at the end of the night. No, they are mostly rich people with their armies of tax lawyers and accountants and, more recently, bought and paid politicians.
The annual tax gap – the difference between what is collectively owed for federal tax liabilities and what is actually paid – was approximately $ 441 billion based on IRS data analysis for the 2011, 2012, and 2013 tax years. A small part of this money made up again: After applying the tax enforcement measures and taking into account late payments, the tax gap has closed to 381 billion US dollars per year.
Obviously, there is a lot of money left on the table for $ 441 billion a year, or even the tax loophole of $ 381 billion that was eventually reduced. However, these numbers are dwarfed by expectations for the years to come under current conditions. Funding for the IRS’s enforcement efforts has been cut by the Trump administration, and audits of low-income earners applying for tax credits have been prioritized. If IRS funding is not restored and enforcement efforts are realigned, the annual tax gap will only increase. The Treasury Department estimates the tax gap has already grown to about $ 580 billion by 2019, and the agency predicts that $ 7 trillion in federal taxes will remain unpaid over the next decade.
In contrast, fraud and waste in aid programs – still colloquially known as “welfare” – cost the US nowhere near as much. In 2015, fraud, overpayments, and underpayments across all state and federal aid programs cost the US approximately $ 136.7 billion. Not only is this less than a quarter of what the tax gap has cost the US in recent years for which reliable figures are available, it is artificially high by comparison, with the tax gap figures only including unpaid federal taxes, while the figures of the Social welfare fraud also costs the state governments.
Nobody wants to see costly fraud in aid programs, of course, but the tax gap is actually where revenues increase without the current legal framework having to be dramatically changed. By investing about $ 80 billion in the IRS over the next 10 years, the Biden government expects to reclaim another $ 700 billion in taxes owed by the rich and corporations. Biden’s idea of focusing on the huge sums the rich owe seems like a better use of resources than what the Trump administration has done: stepping up low-income tax credit checks and adding extra breaks for the rich.
If you need money on roads, bridges, airports, childcare, and a host of other investments to put on the Biden agenda, it is probably best to start looking for the money you already owe. Both utility fraud and unpaid taxes deserve attention. But when you have two potential pools of money to dive into, and one is more than four times the size of the other, it doesn’t take a rocket scientist to determine what to focus your efforts on.
Jonathan Wolf is a civil litigation attorney and author of Your debt free JD (Affiliate link). He has taught legal writing, written for a variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are likely pure gold, but are entirely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the loan anyway. He can be reached at [email protected].
ATL Finance, Enforcement, Finance, Finance Docket, Fraud, IRS, Joe Biden, Jonathan Wolf, Tax Gap, Tax Law, Welfare