Biden's plan to go after the taxes of America's richest could fall short of expectations

·Reporter
·3 min read

Democrats want to claw back taxes that America’s richest often avoid to fund their infrastructure package, but some provisions may not raise as much as initially expected. 

That could make it harder to garner political support.

Two of the biggest revenue generators for the $3.5 trillion plan moving through Congress are beefing up the Internal Revenue Service to go after wealthy Americans and requiring more disclosures from financial institutions. Those two provisions alone are expected to bring in $700 billion over 10 years, according to estimates by the White House.

Those should help close the so-called tax gap — the difference between how much tax is owed and the amount actually collected — which totals around $600 billion per year, or $7 trillion over 10 years, according to recent estimates from the Treasury Department. The top 1% of earners account for 21% of the uncollected tax or $163 billion a year.

“Giving the IRS the information and resources that it needs will generate substantial revenue,” Natasha Sarin, deputy assistant Treasury secretary for economic policy, wrote. “But even more importantly, these reforms will create a more equitable, efficient tax system.”

WASHINGTON, DC - SEPTEMBER 09: U.S. President Joe Biden speaks about combatting the coronavirus pandemic in the State Dining Room of the White House on September 9, 2021 in Washington, DC. As the Delta variant continues to spread around the United States, Biden outlined his administration's six point plan, including a requirement that all federal workers be vaccinated against Covid-19. Biden is also instructing the Department of Labor to draft a rule mandating that all businesses with 100 or more employees require their workers to get vaccinated or face weekly testing. (Photo by Kevin Dietsch/Getty Images)
U.S. President Joe Biden speaks about combatting the coronavirus pandemic in the State Dining Room of the White House on September 9, 2021 in Washington, DC. (Photo by Kevin Dietsch/Getty Images)

Estimate shortfalls

But the changes may not bring in as much as the administration hopes.

This first piece of the plan is an $80 billion injection into the IRS — over 10 years — that would go toward enforcement against high-income earners. The funding would be used to overhaul technology to improve compliance as well as hire and train auditors on complex investigations of corporations, partnerships, and wealthy individuals.

“Most Americans, at this point, probably believe the IRS needs more funding,” Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center, told Yahoo Money.

While the $80 billion boost is projected to generate $320 billion in additional tax collections over the 10 years, according to estimates by the Biden administration and the Treasury Department, the Congressional Budget Office estimated that figure to be lower — $200 billion — over the same period.

Washington Dc: Internal Revenue Service federal building Washington DC USA.  The Internal Revenue Service (IRS) is the revenue service of the United States federal government. The government agency is a bureau of the Department of the Treasury. The IRS is responsible for collecting taxes and administering the Internal Revenue Code, the federal statutory tax law of the U.S.A
Internal Revenue Service federal building Washington DC USA. Photo: Getty Commercial

The second part of the plan would require banks to report inflows and outflows from taxpayers’ accounts, giving the IRS additional information about business revenue and expenses to better target audits.

The Biden administration and the Treasury Department expect the provision to raise $460 billion of revenue over a decade. While the CBO has yet to provide its own score, the estimate could fall short of the final tally, according to Rosenthal.

‘Largest revenue-raising items at the lowest political risk’

The potential overestimation of what these proposals generate could put a cloud over their inclusion in the final legislation that Democrats are now writing, according to Rosenthal. Already, the proposed change to the bank reporting faces an uphill battle, according to Rosenthal.

“It’s quite intrusive, it demands information of every account, personal accounts, business accounts,” he said. “I think that level of intrusiveness will trigger some Democrats.”

And the Senate needs all Democrats on board to pass the package through reconciliation without any Republican support. Overstated benefits makes that tougher.

“When a proposal scores as smaller rather than bigger that means the proposal is harder to enact because Congress wants use of revenue to offset spending programs,” he said. “Congress prefers the largest revenue-raising items at the lowest political risk.”

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Denitsa is a writer for Yahoo Finance and Cashay, a new personal finance website. Follow her on Twitter @denitsa_tsekova

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