Washington, D.C. — A new report from the Center for American Progress examines how the IRS’ diminished resources have worsened the problem of tax evasion by wealthy individuals and businesses, resulting in losses of hundreds of billions of dollars of revenue each year.
In “Unrigging the Economy Will Require Enforcing the Tax Laws,” Seth Hanlon, senior fellow at the Center for American Progress, finds that the IRS lacks the resources to properly conduct audits, due in large part to a decade of congressional budget cuts. He also finds that the agency misdirects the resources it does have toward auditing low-income earned income tax credit recipients at disproportionate rates, while auditing many fewer wealthy individuals and large corporations.
Because tax evasion and avoidance is so concentrated among high-net-worth individuals and businesses, it is also exacerbating wealth inequality and contributing to a general sense that the economy is rigged against regular workers.
Hanlon suggests several strategies to improve tax enforcement, including:
- Increasing IRS tax enforcement funding
- Changing budget scorekeeping rules to more accurately account for better tax enforcement
- Reprioritizing IRS enforcement resources and rebuilding the “wealth squad”
- Expanding the scope of information reporting and withholding
- Improving employment tax enforcement
- Better regulating tax preparers and expanding Volunteer Income Tax Assistance programs
- Improving tax gap estimates and their presentation
The issues that Hanlon outlines in his report are gaining traction in Congress. Rep. Peter DeFazio (D-OR) recently introduced the IRS Enhancement and Tax Gap Reduction Act, which adopts many of the recommendations in Hanlon’s report and would help the IRS collect underpaid taxes from top earners.
“The recent high-profile allegations of tax dodging involving Paul Manafort, the Trump family, and others are just the tip of the iceberg when it comes to tax evasion and aggressive tax avoidance. This leads to hundreds of billions of dollars in lost revenue every year,” said Hanlon. “The recommendations that I’ve outlined in my report and that Rep. DeFazio has included in his bill would go a long way toward leveling the playing field for honest taxpayers and unrigging the economy to lay the groundwork for a more inclusive and prosperous economy.”
Read the report: Unrigging the Economy Will Require Enforcing the Tax Laws by Seth Hanlon
For more information on this topic or to speak to an expert, contact Julia Cusick at [email protected] or 202-495-3682.