Democratic presidential candidates are proposing to give the IRS more resources for enforcement as they seek to combat inequality and raise revenue for their spending priorities.
Candidates are interested in shrinking the “tax gap” between the amount of taxes owed and the amount of taxes paid on time. They also want to ensure that their proposed taxes on the rich are not evaded.
Several tax experts said that proposals for more tax enforcement are smart policy and noted that the concept has received bipartisan interest from policymakers.
Mark Mazur, a former Obama Treasury Department official who now is director of the Tax Policy Center, said that “no one gets elected by promising to give more money to the IRS” but that both Republicans and Democrats think it’s a problem that the federal government doesn’t receive all the tax revenue that it is owed.
“There’s a potential scope for a bipartisan move here,” he said.
Calls for more resources for tax enforcement have come from a range of Democratic presidential candidates.
The latest candidate to issue such a proposal was former New York City Mayor Michael Bloomberg. In the tax plan he released last weekend, Bloomberg proposed giving the IRS more resources in an effort to reduce the tax gap.
Sen. Bernie Sanders (I-Vt.) has proposed increasing IRS funding for enforcement as part of his plan to ensure that his proposed wealth tax is enforceable. His wealth-tax proposal also includes several other enforcement priorities, including new third-party reporting requirements, an exit tax for wealthy people seeking to expatriate and enhancements to international tax enforcement.
Sen. Elizabeth Warren (D-Mass.) has proposed taking several steps to reduce the tax gap as a way to raise revenue to finance her “Medicare for All” plan — including increasing IRS funding, expanding third-party reporting and withholding requirements and redirecting enforcement efforts from low-income taxpayers to high-income taxpayers. The Warren campaign released a letter from several economists who estimated that her proposed tax-enforcement efforts would raise $2.3 trillion over 10 years. Warren’s wealth-tax proposal also includes anti-evasion measures.
“The wealthy and well-connected got their buddies in Congress to gut the IRS and cut out loophole after loophole so they don’t have to pay their fair share,” Warren spokeswoman Saloni Sharma said. “By going after these tax cheats and increasing funding for tax enforcement, Elizabeth will fund middle-class investments that will grow our economy and provide families with more financial security.”
Former South Bend, Ind., Mayor Pete Buttigieg is proposing to raise $1 trillion from additional IRS enforcement of corporations and high-income individuals, his campaign told The Wall Street Journal in December.
The proposals to boost tax enforcement come after the IRS has seen a decline in its budget over the last decade. Republicans pushed through funding reductions to the IRS in the early 2010s, after they had won control of the House, and the GOP’s dislike of the agency was heightened after a 2013 inspector general report found that the IRS had subjected conservative groups’ applications for tax-exempt status to extra scrutiny.
According to a report from the National Taxpayer Advocate, the IRS’s budget decreased by 20.4 percent from fiscal 2010 to 2019 after adjusting for inflation, and the number of full-time IRS employees also declined by more than 20 percent during this time period. The percentage of individual tax returns that the IRS audits has also dropped since 2010, according to IRS data, and the agency has connected the decline in employees with the decline in audits.
The IRS received a slight increase in funding for fiscal 2020, but the agency’s funding level is still significantly below where it was in 2010.
Democrats have been critical of the IRS budget cuts and are interested in reversing them.
“The candidate proposals are welcome, and hopefully we’re starting to see some momentum to bring the agency back to a sound footing from its depleted state,” said Chuck Marr, director of federal tax policy at the left-leaning Center on Budget and Policy Priorities.
Democratic candidates are also seeking to pay for spending priorities in areas such as health care and education and view steps to boost tax compliance as a way to help finance those investments.
Many tax and budget experts agree that boosting the IRS’s enforcement budget would raise revenue for the federal government. However, there are a range of estimates on exactly how much revenue the agency could generate with more resources for tax enforcement.
Massachusetts Institute of Technology professor Simon Johnson, University of Michigan professor Betsey Stevenson and Moody’s Analytics chief economist Mark Zandi provided the Warren campaign with an estimate that the proposals to reduce the tax gap in her Medicare for All financing plan would raise $2.3 trillion after accounting for the costs of increased enforcement.
But the Committee for a Responsible Federal Budget, a budget watchdog group, put its main estimate of Warren’s tax enforcement proposals at $300 billion, saying in a report last month that such an amount “is the most we think could credibly be scored from measures to reduce the tax gap without fundamentally restructuring the tax system.”
The Congressional Budget Office estimated in 2018 that increasing the IRS’s appropriations for enforcement by $20 billion over 10 years would increase revenue by $55 billion over that time period.
Harvard professor Larry Summers, a former official in Democratic administrations, and University of Pennsylvania professor Natasha Sarin estimated in a recent paper that a $100 billion increase in investments in the IRS over 10 years would generate about $1.1 trillion in revenue. The pair advocate for enhanced resources for enforcement, improved information reporting and increased investments in IRS information technology.
Sarin said an interview that an obvious starting point for raising revenue, particularly from high-income taxpayers, “is to start by making sure that people are paying the taxes that they already owe.”
There has been some bipartisan support for providing the IRS more resources for enforcement. Both President Trump and former President Obama had proposed in their budget requests more funds for IRS enforcement on top of the agency’s regular budget.
“Even the administration realizes that it’s in charge now and can’t starve the IRS any further,” said Steven Miller, a former acting IRS commissioner who now works at Alliantgroup.
But convincing voters of the need to boost enforcement for the tax agency could also be a politically hard sell. And some conservatives still have reservations about boosting IRS funding for enforcement.
Andrew Moylan, executive vice president of the National Taxpayers Union Foundation, said that proposals to give the IRS more enforcement tools, such as more third-party reporting requirements, could create more burdens for taxpayers. He also expressed concerns that the IRS could abuse its power in the enforcement process.
Moylan said that simplifying the tax code would be “a more responsible way” to shrink the tax gap.
Rep. Kevin Brady (Texas), the top Republican on the House Ways and Means Committee, said that “the solution to compliance isn’t unleashing 15,000 or 50,000 new IRS agents on America. It is making the tax code simpler.”