In his $1.52 trillion budget request for 2022, President Joe Biden is calling for $1.2 billion in additional funding for the Internal Revenue Service, largely so the agency can funnel more resources to audit wealthy taxpayers and corporations.
A smaller portion of the extra funds would beef up customer service for everyday taxpayers.
“The President’s funding request makes things fairer,” Treasury Secretary Janet Yellen said in a statement on Friday. “It will make paying taxes a more seamless process for millions of Americans. And it makes sure that corporations actually pay what they owe.”
The additional funding would increase the agency’s 2022 fiscal year budget by 10% over the $12 billion baseline budget for the 2021 fiscal year. The majority of the funding — around $900 million — would go to increasing resources for oversight of corporate and wealthy Americans' tax returns and ensure compliance.
The remaining funds would be used to provide new and improved online tools as well as telephone and in-person customer service so that taxpayers are able to communicate better with the agency.
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This extra funding would help to reverse the years of budget cuts the agency has faced. Since 2010, the IRS has lost 21,000 employees. One consequence of the staff reduction is the agency’s inability to fully investigate tax evasion by wealthy taxpayers.
The wealthiest Americans are failing to report more than a fifth of their taxable income to the IRS using sophisticated forms of tax evasion to avoid paying Uncle Sam, a recent study by the National Bureau of Economic Research found.
Unreported income for the top 0.1% is 1.8 times higher than previously estimated, the paper found, while it is 1.3 times higher than originally calculated for the top 1%.
"The tax gap is substantially larger than the IRS estimate," Daniel Reck, a professor at the London School of Economics and one of the authors of the report, told Yahoo Money in March. "For the top 0.1% of the distribution, our estimates suggest that it's almost doubling the tax gap."
President Joe Biden already released a proposal to raise the corporate tax rate to 28%. He is expected to follow up with proposed tax hikes for high-income earners in an infrastructure bill. Biden campaigned on increasing the top individual income tax rate to 39.6% — the current maximum is 37% — and requiring those who make more than $1 million annually to pay the same rate on investment income as they do on their wages.