Tax Cheats Cost the US $1 Trillion a Year, IRS Chief Says

 

Tax Cheats Cost the US $1 Trillion a Year, IRS Chief Says

The U.S. government is losing out on as much as $1 trillion a year or more in uncollected taxes, IRS Commissioner Charles Rettig told a Senate panel on Tuesday in calling for additional funding to help his “outgunned” agency pursue tax cheats and crack down on tax avoidance.

The last official measure of the “tax gap” — the annual difference between taxes owed and taxes paid — estimated the average annual shortfall at $441 billion from 2011 to 2013. Rettig told lawmakers that the gap has grown significantly since then, fueled by the growth of cryptocurrencies and foreign-source income as well as abuses of pass-through structures. “If you add those in, I think it would not be outlandish that the actual tax gap could approach, and possibly exceed, $1 trillion” a year, Rettig said.

The IRS is set to update its official estimate of the tax gap next year, but a 2019 analysis by former Treasury Secretary Larry Summers and Natasha Sarin, a University of Pennsylvania law professor who recently joined the Treasury Department, estimated the tax gap would total $7.5 trillion from 2020 through 2029. And a working paper published last month by the National Bureau of Economic Research found that the top 1% of taxpayers evade more taxes than previously thought, failing to report about 21% of their income to the IRS and underpaying taxes by some $175 billion a year.

Rettig said that years of budget cuts have left the IRS with about 17,000 fewer enforcement staff than it had a decade ago and called on lawmakers to deliver “consistent, timely, adequate and multiyear funding.” (See the chart below from the liberal Center on Budget and Policy Priorities.) The IRS estimates that it could see a return of $5 to $7 for every $1 increase in its enforcement budget.

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President Joe Biden has asked Congress to increase the IRS budget by about $1.3 billion, or 10.4%, for fiscal year 2022, including $900 million for ramped-up tax enforcement. The IRS “has seen some small budget increases in recent years, but the agency's funding level is still significantly below its 2010 peak when accounting for inflation,’ The Hill’s Naomi Jagoda reports.

Sen. Elizabeth Warren (D-MA) said she would soon propose mandatory funding for the agency, an idea that Rettig endorsed. “The solution isn’t just more funding, it’s about more stable funding that’s targeted toward catching the biggest fish and that’s protected from lobbyists that try to chip away at that funding,” Warren said.

Why it matters: “The tax gap has become an increasingly popular topic on Capitol Hill because of growing budget deficits and federal debt,” The Wall Street Journal’s John McCormick notes. At Tuesday’s hearing, senators of both parties expressed support for narrowing the gap.

Senate Finance Committee Chair Ron Wyden (D-OR) tanked Rettig for delivering what he said was a “wake-up call” about the scale of tax cheating taking place. “My hope is, on the basis of the number of members who brought this up this morning, we can have an aggressive, proactive effort that reflects the seriousness of this,” Wyden said.

Sen. Mike Crapo of Idaho, the top Republican on the committee, said: “If there are those that are cheating on their taxes and causing us to have such a large tax gap, which I don’t doubt, we should address that.”

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New Child Tax Credit Payments Start in July, IRS Says

Rettig also told the Senate committee Tuesday that the IRS expects to begin sending checks in July to families who qualify for the new $3,000 child tax credit created as part of the $1.9 trillion American Rescue Plan that President Biden signed into law last month.

The temporary tax credit provides $3,600 per year per child under the age of 6, and $3,000 per child between the ages of 6 and 17, to be paid monthly.

Individuals with at least one child and a household income up to $75,000 qualify for the full credit, as do married couples filing jointly earning up to $150,000. The credit phases out above those income levels, ending at $95,000 for individuals and $170,000 for couples.

Qualifying taxpayers can expect to receive checks each month from July to December, with the rest of the benefit to be claimed when they submit their 2021 tax forms. According to the Tax Policy Center, roughly 80% of households with children will receive a benefit, with the biggest benefits going to those with the lowest incomes.

A new portal: The IRS will unveil an online portal on July 1 to allow taxpayers to update information about their households, Rettig said. There had been concern that the tax agency would be too overwhelmed by ongoing challenges form the pandemic and recent changes to the tax code to complete that job, but Rettig said he expected to be ready on time. The portal will be “the absolute best product we are able to put together,” he said, adding that it may require updates once the system is up and running.

The bottom line: Though it is scheduled to expire at the end of 2021, the new benefit represents a significant expansion of the existing $2,000 child tax credit. The cost of the child tax credit program will increase by $125 billion this year, according to an analysis by the Institute on Taxation and Economic Policy, while providing a 37.4% income boost for the poorest 20% of families with children. And it’s paid out as a cash benefit, rather than serving as a tax credit, allowing millions of very low-income households to participate.

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As Biden Names End Date, Here’s How Much the War in Afghanistan Has Cost

President Joe Biden plans to pull U.S. troops from Afghanistan by September and will announce his decision tomorrow, White House sources told The Washington Post Tuesday.

The September timeframe replaces a May 1 deadline established by the Trump administration in agreement with the Taliban to bring home the more than 3,000 U.S. troops currently stationed in the country. It would come in time to mark the 20th anniversary of the September 11 terror attacks, which sparked a decades-long global struggle that includes the U.S. invasion of Afghanistan.

Biden has reportedly been weighing the decision for months, and has “concluded there is no military solution to the security and political problems plaguing Afghanistan,” CNN reported Tuesday.

Reaction to the news in Washington was mixed. House Armed Services Committee Chairman Adam Smith (D-WA) said, “Given the options, I think this is the best choice.” But Senate Minority Leader Mitch McConnell (R-KY) called the decision “reckless” and “an abdication of American leadership.”

Tallying the cost: While the cost in human suffering during the longest war in American history is incalculable and includes the loss of more than 2,300 U.S. service members and more than 100,000 Afghan civilians, the war has also come at considerable cost to the U.S. treasury. Though accounting for the costs of war can be a challenge, many analysts agree that the U.S. has spent more than $2 trillion on the conflict in Afghanistan.

An analysis by the Costs of War Project at Brown University in the fall of 2019 broke down the U.S. costs of the war in Afghanistan between 2001 and 2019 like this:

  • $1 trillion for Defense and State Department budgets,
  • $440 billion for off-budget military spending,
  • $240 billion for veterans care,
  • $455 billion in interest costs.


The numbers are no doubt higher now by tens of billions of dollars, given that nearly two more years of conflict have occurred since these estimates were made. And the withdrawal of troops does not bring the costs to an end. According to the Costs of War Project, the cost of caring for veterans continues for decades and accelerates as retired soldiers age. The group says that the U.S. can expect to spend more than $1 trillion in the coming years on health care costs for veterans of the post-9/11 wars, many of whom served in Afghanistan.

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Quote of the Day

“If there’s enough transparency and enough accountability over how this is handled, maybe it’ll work. But in my experience, when you start handing out money to members and members’ districts, you’re on a path to a disaster, and frankly, it’s only a matter of time before one of these earmarks blows up in the Congress’ face. … We don’t need another bridge to nowhere.”

– Former House Speaker John Boehner (R-OH), who banned earmarks as speaker in 2011 after a series of scandals involving corruption or waste, when asked Tuesday by CNN about the return of earmarks in the current Congress.

House Democrats and Republicans have already voted to again allow lawmakers to direct spending to specific projects, and Senate Republicans are reportedly ready to let senators decide individually whether to embrace earmarks along with their Democratic colleagues. Proponents of reviving earmarks, now referred to as “member-directed spending,” say that they will help break the gridlock that has plagued Congress in recent years and that increased transparency and restrictions will prevent a repeat of past abuses.

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