IRS Enhancement and Tax Gap Reduction Act Would Help IRS Collect Underpaid Taxes from Wealthiest Earners and Corporations, Shrink “Tax Gap”
In the face of an economic crisis due to the COVID-19 pandemic, U.S. Rep. Peter DeFazio (OR-04) will reintroduce legislation that will help the Internal Revenue Service (IRS) collect trillions in unpaid and underpaid taxes over the next decade from the top earners and corporations, leveling the playing field for working families and creating a fairer U.S. tax system.
“It’s not enough that our tax code gives billionaires and giant corporations huge tax handouts—the agency responsible for collecting the taxes from these top earners is woefully underfunded and ill-equipped to do so,” said Rep. Peter DeFazio. “The result is working families subsidize the tax bill for the wealthiest among us and multi-billion dollar corporations who aren’t paying their fair share. My bill would make significant investments in the IRS to equip the agency to collect from top earners what the government is owed and set minimum audit levels to ensure the wealthiest are held accountable and pay what they legitimately owe.”
The IRS Enhancement and Tax Gap Reduction Act, will help the IRS shrink the “tax gap”—the difference between tax liabilities owed to the Internal Revenue Service and the liabilities that are actually collected. According to the Office of the Taxpayer Advocate, the tax gap averaged roughly $381 billion annually between 2011 and 2013. Estimates put the current annual tax gap at more than $600 billion, and, barring changes, the federal government will lose an estimated $7.5 trillion over the course of the coming decade. The majority of this gap comes from underpayment from the top 1 percent. Meanwhile, the average U.S. household is paying more than $3,000 annually to subsidize taxpayers who aren’t paying all that they owe.
Rep. DeFazio’s bill would mandate minimum audit levels for high-income individuals as well as high gross-income corporations. In addition, the bill would significantly increase IRS funding levels over the next decade to ensure the agency has the funding it needs to ramp up enforcement, hire and retain additional staff, modernize dated IT infrastructure essential to collecting vital reporting information, and increase taxpayer support services.
Two former IRS commissioners—Fred Goldberg and Charles Rossotti—who served during Democratic and Republican administrations agree with the idea. Also, in this December 2020 Tax Notes report, Rossotti, former Clinton Treasury Secretary Larry Summers and University of Pennsylvania professor Natasha Sarin advocate for Shrinking the Tax Gap. Today, more than 85 national organizations urged the Biden Administration and Congress to invest in fair and robust enforcement of U.S. tax laws and specifically cited Rep. DeFazio’s bill.
The IRS Enhancement and Tax Gap Reduction Act has been endorsed by the AFL-CIO, American Federation of State, County and Municipal Employees (AFSCME), Americans for Tax Fairness, the Communications Workers of America (CWA), Patriotic Millionaires, Public Citizen, Take on Wall Street and Americans for Financial Reform Education Fund, and the Transport Workers Union.
The IRS budget is roughly 20 percent below its peak 2010 inflation-adjusted budget. Since 2010, the agency has lost approximately 30,000 full-time positions, and experienced an increase in casework with the implementation of the Affordable Care Act, the Tax Cuts and Jobs Act, and now COVID-19 response. The results have been disastrous, with plummeting audit rates and a significant increase in tax evasion.
The bill has been co-sponsored by Reps. Beyer, Bonamici, Carson, Cohen, Cooper Doggett, Garamendi, Chuy García, Hastings, Jayapal, Hank Johnson, Jones, Khanna, McGovern, Napolitano, Norton, Ocasio-Cortez, Omar, Raskin, Scanlon, Schakowsky, Adam Smith, Tlaib, and Vela.
“For far too long, corporations and the super-wealthy have dodged their obligations to assume their fair share of the tax burden, leaving everyone else to pick up the tab for the services we all need,” said Lee Saunders, President of the American Federation of State, County and Municipal Employees (AFSCME). “This legislation, by beefing up IRS enforcement and establishing minimum audit levels, would level the playing field for working families, who are currently making up the difference. And it would close a gap worth hundreds of billions of dollars a year – between what the richest Americans owe and what they actually pay. On behalf of all 1.4 million AFSCME members, I applaud Rep. DeFazio for his leadership on this issue and am proud to offer our endorsement of this bill.”
“Making sure that tax cheats no longer get away with breaking the law is a no-brainer,” said Susan Harley, Managing Director of Public Citizen’s Congress Watch division. “By ensuring the IRS is focusing audits on the very wealthy and large corporations, and providing the agency with much-needed resources, Congressman DeFazio’s IRS Enhancement and Tax Gap Reduction Act will finally put our nation on the right path toward closing the gap between what is owed the U.S. government and what is collected.”
“For too long, too many wealthy tax cheats and profitable corporations have been able to avoid what they owe in taxes with impunity,” said Frank Clemente, Executive Director of Americans for Tax Fairness. “By giving the IRS much more robust funding and enforcement tools to go after their tax dodging, this bill will help raise the revenues needed for new investments to build our economy back better and stronger. This will help ensure it works for everyone, not just those at the top.”
“Working families pay their taxes in full, every paycheck,” said Transport Workers Union International President John Samuelsen. “Representative DeFazio is working to ensure that wealthy Americans are paying their fair share for infrastructure, social security, and the many other federal programs that we all use. The IRS Enhancement and Tax Gap Reduction Act is a long overdue solution that will benefit every worker and every member of the Transport Workers Union.”
“No matter how much someone believes we should be taxing wealthy Americans, everyone agrees they should be paying what they rightfully owe,” said Morris Pearl, Chair of the Patriotic Millionaires. “But thanks to an underfunded and ill-equipped IRS, criminal tax evasion is rampant in the top 1% with almost no consequences. We expect poor and middle-class Americans to pay all the taxes they owe, it’s time we do the same for wealthy Americans and corporations. The IRS Enhancement and Tax Gap Reduction Act would bolster the IRS’s enforcement capabilities and restore a much-needed measure of fairness into our country’s tax system.”
“Knowing that our tax laws are only as good as their enforcement, Wall Street and corporate donors have lobbied Congress to chip away at the IRS for decades,” said Porter McConnell, Campaign Director at Take on Wall Street and Americans for Financial Reform Education Fund. “They know that tax auditors pay for themselves many times over in all the tax revenue they recover from tax-evading corporations and the super-rich. The IRS Enhancement and Tax Gap Reduction Act will reinvest in these heroes at the frontlines of tackling inequality, and make sure that the rich and powerful pay their fair share.”
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