The Biden administration on Thursday unveiled a detailed plan laying out a new "tax compliance agenda" designed to beef up IRS enforcement and crack down on wealthy tax cheats – a proposal that it estimates could generate as much as $700 billion.
In a 22-page report, the Treasury Department said that investing $80 billion in the IRS could shrink the "tax gap" – estimated at roughly $584 billion in 2019 – by about 10% over the next decade. The tax gap, or the difference between taxes legally owed and those collected by the IRS, is expected to surge by $7 trillion over the next decade.
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The White House's estimates on how revenue it could generate from increasing the IRS budget far exceeded projections by the nonpartisan Congressional Budget Office. But Treasury officials said the tax gap could be higher than their estimate – which they called conservative – because it's so difficult to calculate.
IRS Commissioner Chuck Rettig previously suggested during a hearing on Capitol Hill that about $1 trillion in taxes goes uncollected each year.
The enforcement plan is a central part of President Biden's multi-pronged plan to pay for his $1.8 trillion American Families Plan, a sweeping spending proposal that would dramatically expand by the government-funded social safety net, by raising taxes on wealthy Americans and corporations.
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The plan calls for banks and cryptocurrency exchanges to report transactions to the IRS, and would also bolster funding and technology for the agency. The new funding would go toward overhauling outdated technology and hiring additional staff; under the proposed measures, the IRS would add nearly 87,000 new employees.
The IRS has 20,000 fewer staff than it did in 2010, and its budget is roughly $11.4 billion – 20% less than it was in 2010, when adjusted for inflation, according to the Congressional Budget Office.
The neutering of the agency has led to a substantial decline in the number of individual audits performed each year: The IRS audited just 0.45% of individual tax returns in fiscal 2019, according to a recent Treasury Department report, or roughly 1 out of every 225 individual returns. Nearly half of those returns belonged to filers who claimed the Earned Income Tax Credit. That figure is down from 0.59% in 2018 and 1.11% in 2010.
The data shows that out of more than 199 million tax returns in 2019, the IRS only examined 771,095 returns. That's a decline of 44% from fiscal year 2015.
Treasury also proposed new regulations on bitcoin, calling for any transfer worth more than $10,000 to be reported to the IRS, noting.
"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.