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LawZag's avatar

I'll be happy to eat crow on this if I am wrong, but I am highly skeptical of increased enforcement leading to significant gains in revenue. The first thing to look at is the IRS' current audit reports.

https://www.irs.gov/pub/irs-soi/21dbs03t17ex.xlsx

Going back to the 2015 tax year where audits are mostly complete, we see the IRS was at somewhere around 23 Billion in recommended additional tax dollars (16 billion for individuals; 7 billion for corporations). Things you should notice looking through the years is that auditing the big boys is not where the money is, even when some 7-8% of big returns are audited. The places with bang for the buck are (1) the people who report no income; (2) people who report 0-25k income; and (3) people who claim refundable earned income tax credits.

Next you can look at the corporate returns. It varies from year-to-year, but the $20 Billion+ is generally the highest in additional dollars owed. But the thing is the that 55-80% of big returns are audited, so there isn't much more juice to squeeze out of those returns. The additional money squeezed out of small businesses which are audited at a lower rate is pretty weak, around 36k a pop per audit with something under 1% of returns examined.

So why is this a problem? The IRS thinks that 80% of the tax gap lives in under reporting of income, with 56% of the under reporting being in individual income tax (13% non business income; 25% business income, 16 percent employment taxes [looking at you Michael Avenatti] 10% credits, and a bunch of miscellaneous stuff). It's also worth noting that as part of measuring the tax gap, the IRS assumes that it is bad at auditing and tosses another 10% on top as a estimate of the undetected lost income which presumably wouldn't be caught if they can't catch it on the returns that they do audit. But long story short, there is nothing in the published numbers that suggests there is an easy enforcement road to collecting additional tax dollars. The easy stuff is already found, and the grind will be combing through more of the no income, low income and EIC returns.

https://www.irs.gov/pub/irs-pdf/p1415.pdf

Finally, I would note that promised estimated tax collection through vigorous enforcement has absolutely bombed previously. FATCA turned the world banks into reporters on Americans and gave them a giant burden on tax filing. Even after paring down, FACTA was promised to bring in 8.7 billion over ten years. The actual number? 300 million [edit: a year to start, and then decreasing] .

https://reason.com/2021/06/09/biden-wont-close-the-tax-gap-but-he-will-snoop-on-your-bank-records/

Jason Furman should have stuck to his weariness, there is no free lunch just hanging out in uncollected tax revenue. I hope I'm wrong, but it just doesn't pass the smell test.

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Rustin Levy's avatar

What about the other parts of the bill related to US energy? Nuclear mini-reactors- will they be labeled green? new pipelines in WV...increased drilling leases...there is a whole lot going on.

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