Biden Proposes Doubling IRS Workforce as Part of Plan to Snag Tax Cheats

By Brian Faler, POLITICO

21 May 21

The department’s total budget would increase by about 10 percent annually.

resident Joe Biden is proposing to double the size of the IRS, by hiring nearly 87,000 new workers over the next decade, as part of a sweeping plan to chase down tax cheats.

The hiring spree, part of a bid to increase IRS funding by $80 billion, would be phased in to give the department time to adjust, the Treasury Department said in a report Thursday.

The agency’s workforce would never grow by more than a “manageable” 15 percent each year. And its total budget would increase by about 10 percent annually.

At the same time, the administration wants to require financial institutions and other businesses to report a lot more information about the money coursing through their customers’ accounts — a proposal designed to put the fear of the IRS in the hearts of tax scofflaws.

It’s part of a concerted effort by the administration to go after uncollected taxes owed by large corporations, partnerships and wealthy individuals — money Democrats want to use to finance their big-ticket spending plans.

“The president’s compliance proposals are designed to ameliorate existing inequities by focusing on high-end evasion,” the report says.

“These unpaid taxes come at a cost to American households and compliant taxpayers as policymakers choose rising deficits, lower spending on necessary priorities, or further tax increases to compensate for the lost revenue.”

The agency said uncollected taxes in 2019 amounted to about $554 billion, though IRS Commissioner Chuck Rettig said recently the figure could be as high as $1 trillion per year.

About 80 percent of that tax gap is attributable to people underreporting their incomes or taking too many deductions. The rest is people either not filing returns at all, or doing their taxes correctly and failing to pay what they owe.

Altogether, the administration says its proposal would generate $700 billion over a decade.

While the administration intends to boost scrutiny of high earners, it says audit rates for those making less than $400,000 would not increase under the proposal.

The push comes after years of tight IRS budgets under Republicans that caused agency audit rates to plunge. The idea of going after tax cheats is now drawing bipartisan support, with a growing number of Republicans saying they support boosting the department’s enforcement capabilities, although some are critical of the new income reporting requirement proposals.

The two sides are now exploring whether they might be able to strike a bipartisan deal to increase infrastructure spending.

One of the questions hovering over the administration’s plan is how the IRS could efficiently absorb such a huge increase in funding — which the Treasury report is designed to answer.

Most of the administration’s $80 billion budget hike would come in the form of so-called mandatory spending that would not have to be approved each year by Congress. That’s intended to provide the agency, which has sometimes seen wild budget swings, with a more reliable stream of funding.

The money would be used not just to increase audits but also to modernize the agency’s computer systems and improve other taxpayer services.

Beefing up enforcement would generate $240 billion in savings over a decade, Treasury says.

The administration projects it could generate another $460 billion over the next decade through the increased income reporting requirements.

Financial institutions would have to report the gross inflows and outflows on all business and personal accounts. So-called payment settlement entities, like PayPal, foreign financial institutions and cryptocurrency exchanges would also be subject to additional reporting requirements. Businesses would have to alert the IRS to cryptocurrency transactions worth more than $10,000.

“Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade,” the report said.

In a briefing with reporters, Treasury officials acknowledged the reporting requirements would produce a mountain of information that would take some time for the IRS to parse.

The main benefit of the proposal, they said, would be deterrence. Because tax cheats would know the government can peer into previously opaque streams of money, they’d be less likely to cheat on their taxes, officials said.

They also acknowledged that arcane budget rules in Congress could prevent Democrats from counting much of the proposed savings against the cost of their infrastructure plan — and said they hoped lawmakers could figure out a way to make it work.