An increase in I.R.S. funding to reverse this decade of damage would also make good fiscal sense. Natasha Sarin, an assistant professor at the University of Pennsylvania law school, and Larry Summers, the Harvard economist, have a proposal to restore about $100 billion to the agency’s budget over the next 10 years.
Various estimates by the Congressional Budget Office, the U.S. Treasury and academic researchers have concluded that investing in the I.R.S. would pay for itself many times over. The Treasury Department, for instance, estimated that each additional dollar dedicated to I.R.S. enforcement results in directly recouping about $6 in taxes owed.
If the Biden administration is looking for a detailed road map, two former I.R.S. commissioners, Charles O. Rossotti (who was appointed by a Democratic president) and Fred T. Goldberg Jr. (who was appointed by a Republican), explained how a restored I.R.S., with new I.T. funding, could be made more effective and efficient.
For example, because the I.R.S. gets information on wage and salary income from workers’ tax returns and their employers — and because their taxes are often automatically withheld — compliance on this type of income is above 95 percent. The I.R.S. could use this third-party information reporting approach to verify types of income, like business income, that typically flow to high-income households and big businesses.
The bipartisan Taxpayer First Act, which was signed into law in 2019, included some modernization measures but, crucially, didn’t include needed funding. Lawmakers have the opportunity to remedy that this year and finally secure the 21st-century tools and resources the I.R.S. needs. Because reforming the I.R.S. is compatible with the budget process that lets spending bills pass in the Senate with a simple majority, there’s little excuse for inaction.
If lawmakers let the chance slip by, the integrity of the tax system could further erode — with the cheats still getting away, at everyone’s cost.
Chye-Ching Huang is the executive director of the Tax Law Center at the New York University School of Law.
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