Sen. Elizabeth Warren (D-MA) on Monday introduced a bill that would remove the Internal Revenue Service’s base funding from the annual appropriations process and provide the agency with a mandatory $31.5 billion a year, nearly triple its current budget.
Warren said that her bill, the Restoring the IRS Act of 2021, would help stop wealthy tax cheats and close the tax gap, or the difference between taxes owed and those collected each year, which the Treasury Department recently estimated to be $600 billion as of 2019. Other estimates have put the annual gap at $1 trillion or more.
Warren pointed to a recent study from the National Bureau of Economic Research that showed that the top 1% of Americans fail to report more than a fifth of their income on tax returns and account for more than a third of all unpaid federal income tax. Audit rates for taxpayers making more than $10 million a year, meanwhile, are nearly 80% lower than they were a decade ago, while audit rates for corporations with more than $20 billion in assets have fallen by nearly half.
President Biden has proposed boosting the IRS budget by $80 billion over 10 years, and the Treasury Department estimated in a report last week that the increased funding and enforcement measures would raise an additional $700 billion over a decade. Warren’s plan calls for providing the IRS with even more funding — and would do so annually instead of through a one-time boost spread out over 10 years.
“Strengthening the IRS’s ability to go after wealthy tax cheats will not only require more funding, but more stable funding,” Warren said in a summary of her legislation. “Most of the IRS’s funding is discretionary, meaning Congress decides every year how much money the agency receives. This leaves the IRS budget unpredictable and vulnerable to cuts. By contrast, mandatory funding would provide funding on an ongoing basis, ensuring that the IRS budget is steady, predictable, and sustained – money that lobbyists can’t easily strip away.”
Warren’s press release said that the legislation would boost tax compliance by:
- Requiring new third-party reporting from financial institutions to help verify tax filings for taxpayers with less visible income streams;
- Requiring the IRS to shift audits toward corporations and wealthy individuals;
- Requiring the IRS to report annually on the tax gap;
- Requiring the IRS to analyze racial disparities in its enforcement;
- Increasing underpayment penalties for taxpayers earning more than $2 million.