Report also said the IRS is ‘understaffed’ and utilizing ‘outdated technology’
The findings were included in a Treasury analysis entitled, “The Case for a Robust Attack on the Tax Gap,” defined as the difference between the amount of taxes owed each year and what the Internal Revenue Service collected. The wealthiest 1% of taxpayers fail to pay an estimated $163 billion in owed taxes each year, Treasury says.
“Today’s tax code contains two sets of rules: one for regular wage and salary workers who report virtually all the income they earn; and another for wealthy taxpayers, who are often able to avoid a large share of the taxes they owe,” said Natasha Sarin, deputy assistant secretary for economic policy at the Treasury Department.
The “tax gap” amounts to approximately $600 billion in lost revenue per year and approximately $7 trillion over the next decade, according to the report. Sarin noted the lost revenue is “3% of GDP, or all the income taxes paid by the lowest-earning 90 percent of taxpayers.”
The report was released amid an ongoing clash on Capitol Hill regarding a Democrat-backed $3.5 trillion budget package. President Biden has argued the plan would be fully paid for through increased taxes on corporations and the wealthiest Americans.
Biden has also backed a plan to invest $80 billion to modernize and restaff the IRS to address the tax gap. Republicans are united in opposing Biden’s tax plan.
The Treasury’s report asserted the IRS is “understaffed” and utilizing “outdated technology,” leaving it unable to collect 15% of owed taxes or conduct enough audits.
“For the IRS to appropriately enforce the tax laws against high earners and large corporations, it needs funding to hire and train revenue agents who can decipher their thousands of pages of sophisticated tax filings,” the report added. “It also needs access to information about opaque income streams—like proprietorship and partnership income—that accrue disproportionately to high-earners.”