
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.
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.”
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.
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.
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.
Send your feedback to yrosenberg@thefiscaltimes.com.
Follow us on Twitter:
@yuvalrosenberg,
@mdrainey and
@TheFiscalTimes. And please tell your
friends they can
sign up here for their own copy of this
newsletter.
News
Biden Will Withdraw All US Forces From Afghanistan by Sept.
11, 2021 – Washington Post
FDA, CDC Call for Pause in Use of Johnson & Johnson Vaccine
After ‘Extremely Rare’ Cases of Blood Clots – Washington
Post
White House Scrambles to Reassure Public After Pause on
Johnson & Johnson's Vaccine – CNN
Rich People and Corporations Need to Pay Up, Says IRS Head as
Agency Looks to Collect $1 Trillion in Unpaid Taxes –
CBS News
New $3,000 Child Tax Credit to Start Payments in July, IRS
Says – CNBC
Consumer Prices in US Advance by Most in Nearly Nine
Years – Bloomberg
The Biden Administration Is Quietly Obsessing Over
Inflation – New York Times
Biden Faces Pressure From Pelosi, Sanders Over Whether to
Double Down on Obamacare or Expand Medicare – Washington
Post
$1,400 Stimulus Checks Can Be Garnished for Unpaid Debts.
Some States Are Working to Prevent That – CNBC
Biden Woos GOP With Sweet Infrastructure Words, but Is It
Progress? – Politico
After Falling Off the ‘Benefits Cliff,’ This Mom Decided to
Build a Child-Care Safety Net – Washington Post
Views and Analysis
Things Are Going Well for Biden. But the Easy Part May Be
Almost Over – Paul Waldman, Washington Post
Rebuilding IRS Would Reduce Tax Gap, Help Replenish Depleted
Revenue Base – Chuck Marr et al, Center on Budget and
Policy Priorities
Democrats Are Torn Over How and When to Try Expanding Health
Coverage – Paige Winfield Cunningham, Washington
Post
Bond Traders’ Inflation Psychosis Won’t Go Away
Soon – Brian Chappatta, Bloomberg
The American Jobs Plan’s Tax Provisions Are Valuable but Not
the Limit on Possible Spending – Josh Bivens, Economic
Policy Institute
Since When Does Government Have a Money Tree? –
Michael R. Strain, Bloomberg
Five Hurdles Democrats Face To Pass an Infrastructure
Bill – Cristina Marcos and Mike Lillis, The
Hill
America Needs to Empower Workers Again – Paul Krugman,
New York Times
The Biden Boom Is Already Wild – Michelle
Goldberg, New York Times
The Consumer Price Index Is Not Economic Reality –
Stephen Mihm, Bloomberg
Our Economic System Is Sexist. Biden’s Child-Care Plans Aim
to Change That – Emily DiVito, Washington Post