‘Understaffed’ IRS is letting the top 1% evade billions in taxes, Treasury Department says

The richest people in America are “choosing not to pay” hundreds of billions of dollars in taxes that they owe each year, according to a new Treasury Department report released Wednesday. The top 1%’s tax-dodging—about $163 billion annually—accounts for about 28% of the total lost annually in unpaid taxes ($600 billion). Over the next decade, this “striking” sum would equal almost 1% of the country’s nearly $23 trillion GDP. The Biden administration is leveraging the report’s lopsided but not exactly unexpected findings to strengthen its case for handing the IRS another $80 billion for tax enforcement.

Many Americans learn in April that they’ve inadvertently underpaid taxes for the past year. But the top 1% often “choose not to pay” their fair share, the report says, because they have the financial resources to “tap into the services of accountants and tax preparers who help shield them from bearing their true income tax liability.”

As the Treasury Department’s Natasha Sarin notes in the report, “The United States collects less tax revenue as a percentage of GDP than at most points in recent history, in part because owed but uncollected taxes are so significant.” Unpaid taxes mean choosing between rising deficits, less spending, and tax increases—the latter of which “will only be borne by compliant taxpayers” anyway, Sarin says.

To enforce tax laws against the rich, she adds, the IRS “needs funding to hire and train revenue agents who can decipher their thousands of pages of sophisticated tax filings. It also needs access to information about opaque income streams—like proprietorship and partnership income—that accrue disproportionately to high earners.”

As part of his plans to boost the economy and expand America’s social safety net, President Biden has proposed higher taxes on individuals earning more than $400,000 a year. His administration says these audits would generate an extra $460 billion over the next decade. More importantly, he wants to give the IRS more money and ramp up the staff there. Over the last decade, the IRS has shed 17,000 tax enforcement workers, the majority of whom, percentage-wise, were senior examiners trained to focus on the richest individuals and corporations.

Right now, Congress is debating Biden’s $3.5 trillion social safety net proposal and his separate $1 trillion infrastructure spending bill, and many Republican lawmakers have called increasing the IRS’s funding and staff size a nonstarter. A poll conducted a couple weeks ago, though, found that two-thirds of Americans approve of giving the IRS additional resources to catch wealthy tax cheats.