Washington (CNN)President Joe Biden wants to raise money for his ambitious economic agenda by ramping up enforcement at the Internal Revenue Service — a way for the federal government to spend more money without raising taxes or adding to the deficit, making it a win-win in the eyes of lawmakers.
The latest infrastructure proposal agreed to by the White House and a bipartisan group of senators suggests that an additional $100 billion could be collected by the IRS over the next 10 years by simply beefing up enforcement and making sure the government is collecting what taxpayers actually owe — also known as closing the “tax gap.”
Biden also suggested earlier in the year that if he could boost the IRS’s budget by $80 billion to pay for enforcement, he could increase revenue for the government by $700 billion over 10 years — money he’d use to fund his American Families Plan, which would invest in child care, pre-K and colleges.
But it’s unclear exactly how much could be raised and how much it would cost to increase enforcement. Here’s how it could work:
How much in taxes goes unpaid?
The difference between taxes owed by law and the amount actually paid to the IRS — known as the “tax gap” — could fall somewhere in the range of $381 billion to $1 trillion annually.
The latest IRS report available says that nearly 84% of federal taxes are paid voluntarily and on time, leaving $441 billion uncollected. After late payments are made and enforcement actions taken, the gap narrows to $381 billion, according to the report.
But that’s based on tax years 2011, 2012, and 2013 and IRS Commissioner Chuck Rettig told lawmakers earlier this year that he believes the tax gap could be much bigger now — up to a massive $1 trillion a year.
One reason the earlier report may underestimate the tax gap? There’s been an increase in the use of virtual currencies since 2013, which comes with new compliance challenges. The earlier estimates may have also underestimated unreported offshore income and the use of pass-through entities.
The Biden administration has put the figure somewhere in the middle. A recent Treasury analysis fo
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