Six hundred billion dollars a year, and growing: This represents two-thirds of total non-military discretionary spending by the federal government – what is spent on defense operations, military personnel and procurement, and more than spending federal mandatory for Medicaid. It is also roughly how much unpaid taxes are costing the US government. This must change, and it is possible.
The five of us served as Treasury Secretary under three presidents, both Republican and Democrat, representing 17 years of experience leading the department. While we disagree on many areas of tax policy, we believe it is important to strengthen the tax system to do more to collect taxes legally owed but not collected – which, if left unanswered, could add up to $ 7 trillion over the next decade. We are convinced by the strength of our experiences that more can be done to pursue the escape in the manner described by President Biden’s recent proposal to increase the resources and information available to the IRS.
Over the past 25 years, IRS resources have been steadily reduced, with the ratio of enforcement funding to returns filed decreasing by approximately 50%. Today, the IRS has fewer auditors than at any time since World War II. Faced with resource constraints, it’s no surprise that the agency is unable to properly focus on complex returns, where non-compliance is greatest. Out of about four million partnership returns filed in 2018, the IRS only verified 140. It failed to prosecute 300 high-income taxpayers who together cost the agency $ 10 billion in money. unpaid taxes over a three-year period even though they had not even filed any returns. And the audit rates of the richest 1% have dropped dramatically over the past decade, so rural counties in the Deep South have some of the highest review rates in the country.
President’s proposal calls for a significant investment in the IRS, with $ 80 billion over a decade in mostly mandatory funding to provide multi-year resources to support needed advancements in workforce, services and technology some information. In particular, the agency’s siled and archaic IT is a major source of risk, causing server failures and leaving the IRS vulnerable to cyberattacks. It is imperative that the information technology that underpins our tax system keeps pace with the information technology that drives our economy.
The proposal also calls for increasing the information available to the IRS. When income can be verified by third-party reports, such as wages, salaries, pensions, and unemployment income, rates of misrepresentation are less than 5%. But misrepresentation exceeds 50% for certain types of business income, such as rental and property income. The current tax system thus benefits certain high incomes who derive most of their income from sources where false declarations are common.
We believe it is possible to design better information reporting requirements that will allow significant increases in revenue collection without imposing any burden on taxpayers and not imposing any significant increase in regulatory burdens across the country. ‘economy. Relying on financial institutions to relay some basic account holder information is a smart way to move forward. With better information for the IRS, voluntary compliance will increase through deterrence as potential tax evaders realize that there is a risk of evasion.
The Treasury’s Office of Fiscal Analysis estimates that these initiatives will generate $ 700 billion over the 10-year budget window. But this proposal, if any, is modest. Former IRS Commissioner Charles Rossotti, who served under Presidents Bill Clinton and George W. Bush, and Fred Forman, a seasoned technology executive and former IRS Associate Commissioner for Modernization, estimate that 1.6 trillion dollars could be raised within a decade through efforts to close the gap between taxes due and collected. Indeed, they include, for example, modernizing obsolete technological systems and improving taxpayers’ experience with the IRS – elements of the administration’s proposal that have no impact on revenues. taken into account.
Fittingly, the Biden approach recognizes that compliance can be improved by making it easier for taxpayers to avoid honest mistakes, allowing the IRS to pick up the phone when taxpayers call to ask questions, and increasing the monitoring tax preparers to ensure their competence.
We know firsthand the challenge that dedicated IRS employees face every day as they work to administer tax laws while crippled by inadequate funding and support. Reasonable people may disagree about the magnitude of certain tax rate increases. But on this issue, everyone should agree, including members of Congress on both sides: giving the IRS the tools it needs to improve compliance will generate significant revenues and create a better tax administration system. fair and more efficient.
Timothy F. Geithner, Jacob J. Lew, Henry M. Paulson Jr., Robert E. Rubin, and Lawrence H. Summers are former Secretaries of the United States Treasury.
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