In 2011, the IRS investigated 2.4 million “nonfilers” – people who just didn’t bother filing or paying taxes at all. Last year? Only 362,000. That doesn’t mean people have become more conscientious about paying taxes. The dramatic drop-off in investigations, like the 42 percent drop in audits over the same time period, shows just how badly the IRS has been gutted over that time period.
“As of last year, the IRS had 9,510 auditors. That’s down a third from 2010. The last time the IRS had fewer than 10,000 revenue agents was 1953, when the economy was a seventh of its current size. And the IRS is still shrinking. Almost a third of its remaining employees will be eligible to retire in the next year, and with morale plummeting, many of them will.”
Who’s paying the price? Every one of us who does pay our taxes.
The IRS largely fails to audit big businesses and billionaires, because those audits take huge amounts of time and resources. Those are also the taxpayers most likely to cheat and cheat big:
“But some ‘taxpayers with more complex sources of income, most of whom are in high-income brackets’ are able to avoid paying what they owe. In recent testimony before Congress, IRS Commissioner Chuck Rettig said that he believes the ‘tax gap’ — the difference between what is paid to the IRS and what is owed — could exceed $1 trillion annually.
“A paper published in March from the National Bureau of Economic Research found that Americans in the top 1% underreport their income by an average of 21%. These individuals then hire ‘sophisticated lawyers and accountants capable of expanding years and significant resources on fighting IRS claims.'”
Republicans in Congress have slashed the IRS budget over the past decade, characterizing the IRS as “big government.” Funding for enforcement—investigations and audits—has been particularly hard-hit. As a consequence, the IRS focuses more of its audits on the working poor. That’s so much easier than auditing millionaires.
President Biden is asking for a big increase in funding for the IRS—$80 billion over the next ten years. The Biden administration says that this increase in IRS funding will raise at least $700 billion over ten years. That increase will be collected from high-earners and businesses now getting away with cheating. Some economists think the increase could be more than a trillion dollars. That means a huge increase in tax fairness:
“’The plan is good news for honest filers and businesses, the budget, and the rule of law,’ said Chye-Ching Huang, the executive director of the Tax Law Center at N.Y.U. Law. ‘Stopping tax cheats from having an unfair advantage helps honest businesses to compete and thrive.'”
It’s about time.