Washington, DC, May 24, 2021- Today, United States Senator Elizabeth Warren (D-Mass.), a member of the Senate Finance Committee, introduced the Restoring the IRS Act of 2021, which would provide the Internal Revenue Service (IRS) with the resources it needs to go after wealthy tax cheats and close the tax gap. The bill would rebuild and strengthen the IRS by permanently removing the IRS’s base budget from the annual appropriations process and providing $31.5 billion in mandatory annual funding. This funding will allow the IRS to fairly enforce the tax code, modernize its IT systems, and improve taxpayer services.
“For too long, the wealthiest Americans and big corporations have been able to use lawyers, accountants, and lobbyists to avoid paying their fair share – and budget cuts have hollowed out the IRS so it doesn’t have the resources to go after wealthy tax cheats. The IRS should have more – and more stable – resources to do its job, and my bill would do just that,” said Senator Warren.
A recent study shows that the top 1% of Americans fail to report more than a fifth of their income on their tax returns, and they account for more than a third of all unpaid federal income tax. This underreporting has helped drive the tax gap – the difference between taxes owed and taxes paid – to exceed an estimated $1 trillion annually.
More than a decade of politically motivated budget cuts, however, have hampered the IRS’s ability to perform its core duties – especially enforcement focused on the ultra-rich. Since 2010, the IRS enforcement budget has declined by more than 20%, and the agency has lost one-third of its enforcement personnel. As enforcement resources have declined, so have the agency’s audits of millionaires and giant corporations. Audit rates for the very wealthiest taxpayers, those with incomes over $10 million, are nearly 80% lower than they were a decade ago, while audit rates for corporations with more than $20 billion in assets have fallen by nearly half.
Strengthening the IRS’s ability to go after wealthy tax cheats will not only require more funding but more stable funding. Mandatory funding for the IRS would provide funding on an ongoing basis, ensuring that the IRS budget is steady, predictable, and sustained. IRS Commissioner Charles Rettig recently testified that mandatory, multiyear funding would help the IRS crackdown on wealthy tax dodgers. In addition to more funding, strengthening information reporting would help the IRS verify wealthy individuals’ incomes and make it more difficult for them to hide their income.
A 2016 study by the Treasury Department estimates that every $1 invested in IRS enforcement could yield $24 in additional revenue, including a nearly $6 direct return in revenue collection, as well as an indirect deterrence effect estimated to be at least three times the direct revenue impact. Recent analyses estimate that stepped-up IRS enforcement could raise as much as $1.75 trillion over ten years.
The Restoring the IRS Act would provide the IRS with the resources it needs to go after wealthy tax cheats and close the tax gap. The bill would rebuild and strengthen the IRS by permanently removing the IRS’s base budget from the annual appropriations process and providing $31.5 billion in mandatory annual funding – more than double the IRS’s budget in 2010 (adjusted for inflation). This funding will allow the IRS to fairly enforce the tax code, modernize its IT systems, and improve taxpayer services.
The bill would also improve tax compliance by:
- Requiring new third-party reporting from financial institutions to help the IRS verify tax filings for taxpayers with less visible income streams – without adding any burden on individuals
- Requiring the IRS to create a plan, and report annually on implementation progress, to shift audits towards high-income, high-wealth tax filers and corporations
- Requiring the IRS to report annually on the tax gap, and how additional information reporting requirements could further close the tax gap
- Requiring the IRS to conduct an analysis of racial disparities in the agency’s enforcement activity
- Increasing penalties for underpayment for taxpayers with income above $2 million
- Applying the False Claims Act to misstatements on tax returns for taxpayers with income above $10 million
Senator Warren joined the Senate Finance Committee in the 117th Congress and pledged to continue fighting on behalf of working families and address how the U.S. tax system favors giant corporations, the wealthy, and the well-connected. In January 2021, Senator Warren introduced her Ultra-Millionaire Tax Act which would impose a tax on the wealth of the top 0.05% of Americans. In April, during her first hearing as chair of the Senate Finance Committee’s Subcommittee on Fiscal Responsibility and Economic Growth, Senator Warren delivered remarks on how a fairer tax system can bring in trillions in revenue to create more opportunities for Americans. She also made the case for how her Real Corporate Profits Tax, Ultra-Millionaire Tax Act, and Restoring the IRS Act would ensure that the wealthy and big corporations pay their fair share. Senator Warren’s proposals are estimated to help raise enough to pay for President Biden’s American Jobs Plan, the American Families Plan, with additional revenue left over.