By Richard Rubin
WASHINGTON -- The Biden administration's tax enforcement plan would double the number of IRS employees over the next decade and require banks, payment services and cryptocurrency exchanges to provide the government more information about account flows, according to a Treasury Department report released Thursday.
Treasury officials project that the plan would generate a net $700 billion over the next 10 years and $1.6 trillion in the decade after that, and the report says those figures are conservative because they underestimate how audits deter tax dodging and don't count any benefits from improving IRS technology.
The report outlines the administration's pitch for about $80 billion in additional funding for the Internal Revenue Service over the next decade, arguing that weak enforcement disproportionately benefits wealthy tax evaders.
Beefed-up tax enforcement is part of President Biden's plan to pay for family benefits, including an extension of the expanded child tax credit. Because the plan doesn't require raising taxes, it has drawn bipartisan interest in discussions about financing for investments in roads, bridges, broadband and other types of infrastructure.
There are hurdles in turning the idea into policy and the policy into federal revenue that wouldn't arrive instantly. The plan's success hinges on a long-term congressional commitment to tax enforcement, the IRS's ability to hire and train tens of thousands of people and the government's capacity to build and manage an information-technology overhaul at the tax agency.
Already, some Republicans are warning about potential IRS overreach and expressing wariness about the additional requirements that banks and other entities give the government a clearer view into Americans' finances.
"Businesses of all sizes would incur new and burdensome compliance costs and reporting requirements along the way," Sen. Chuck Grassley (R., Iowa) wrote in the Des Moines Register this month. "Instead of promising a chicken in every pot, Biden's plan promises an auditor at every kitchen table."
The administration's plan aims to narrow the tax gap, the difference between taxes owed and taxes collected. Official IRS estimates say that gap was $441 billion a year between 2011 and 2013 and $381 billion after enforcement and collection efforts bring in some money. The report projects that gross gap to be $584 billion in 2019 and about $7 trillion cumulatively over the next decade. The projected $700 billion gain would close 10% of that gap.
The plan has two major components. One would add nearly 87,000 employees to the IRS over the next decade. That hiring binge -- expanding the agency's workforce by as much as 15% a year -- would reverse a decadelong decline in audits and collections and would eventually bring in money from high-income tax dodgers. Eventually, the agency's budget would be 40% larger, adjusted for inflation, than it was in 2011, before it started shrinking.
That staff expansion would be paired with an overhaul of the agency's aging technology, aimed at providing better service to taxpayers and more capacity to analyze tax data to find noncompliance.
Most of the money -- $460 billion -- would come from the second big piece. That plan increases the government's ability to see into a current blind spot -- business income where there is no independent verification to the IRS, as there is for wages where W-2 forms go to workers and the government. Banks and payment providers would be required to report inflows and outflows from accounts each year, starting in 2023.
"Financial institutions house a lot of valuable information, and indeed already provide third-party reports to the IRS," the report said. "Leveraging this information -- rather than introducing new requirements for taxpayers -- is a proven way to improve compliance."
Account flows don't actually represent income and deductions, so the government wouldn't be able to match these reports with tax returns as it does with W-2s. The report says the information would give the government enough of a window into transactions to target audits more effectively where there are large discrepancies and that tax evaders would change their behavior because they know what information the government has.
Treasury officials said it would take time for the IRS to figure out how to use the new information, and they emphasized that the proposal wouldn't add a new burden on compliant taxpayers.
The administration's bank-reporting proposal is too broad in that it pulls in data on people at little risk of cheating and too narrow in that it doesn't get enough information on the business owners who are most likely to underreport their income, said Steve Rosenthal, senior fellow at the Tax Policy Center, a joint project of the Brookings Institution and Urban Institute.
Although administration officials talk about going after wealthy tax dodgers with their expanded staffing, the bank reporting proposal wouldn't do much to them, he said. That is because the highest-earning Americans are employing more sophisticated tax-dodging techniques than just declining to declare all their income.
The bank-reporting rules are designed to get a different group of people altogether -- business owners who inflate their deductions and don't report all their income.
"This is a political call by the Biden administration: Let's not tell those guys, small-business guys, what we're doing," Mr. Rosenthal said.
The plan also calls for cryptocurrency exchanges and custodians to make similar reports. And businesses that receive more than $10,000 in cryptocurrency would be required to report those transactions, mirroring the rules designed to police cash transactions.
"Although cryptocurrency is a small share of current business transactions, such comprehensive reporting is necessary to minimize the incentives and opportunity to shift income out of the new information reporting regime," the report said.
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(END) Dow Jones Newswires