WASHINGTON, July 8—Today, at the request of Senate Budget Committee Ranking Member Bernie Sanders (I-Vt.), the Congressional Budget Office (CBO) issued a report, “Trends in the Internal Revenue Service’s Funding and Enforcement,” examining the causes of hundreds of billions of dollars in annual tax avoidance and evasion, facilitated by budget cuts to the Internal Revenue Service (IRS).
CBO found that the estimated amount of taxes owed but ultimately unpaid was $381 billion on average annually from 2011 to 2013 according to the latest data from the IRS. The tax gap is almost certainly substantially higher given that the total revenue collected has gone up by more than a third since that time. A recent academic study found that roughly 70% of the gap is explained by underpayment of the top 1%.
“The richest 1% is responsible for 70% of all unpaid taxes,” said Sanders. “With the money that these tax cheats owe, this year alone, we could fund tuition-free college for all, eliminate child hunger, ensure clean drinking water for every American household, build half a million affordable housing units, provide masks to all, produce the protective gear and medical supplies our health workers need to combat this pandemic, and fully fund the U.S. Postal Service. That is an absolute outrage, and this report should make us take a long, hard look at what our national priorities are all about.”
Despite the enormous amount of taxes going unpaid by the wealthy and large corporations, Congress has cut overall resources to the IRS by 20% in inflation-adjusted terms since 2010, which has led to the elimination of 22% of its staff during that time period. Even more strikingly, funding and staff dedicated to enforcement have declined by about 30% since 2010.
While Republicans attempt to portray these cuts as a populist move against an unpopular agency, the real impact has been to open up the floodgates for the wealthy and corporations to avoid or even evade the taxes that they owe. The IRS examination rate for the largest corporations, those with $20 billion or more in assets, dropped by about half from 2010 to 2018. The wealthiest taxpayers, with more than $1 million in income, saw their audit rate cut by 63% during the same time period.
“For every dollar we invest in getting the IRS the staffing and resources it needs, we get three dollars back in unpaid taxes,” said Sanders. “Make no mistake: the primary beneficiaries of IRS funding cuts are wealthy tax cheats and large corporations.”
The new CBO report also found that increasing IRS funding by just $20 billion over the next 10 years would actually decrease the deficit by $40 billion over the next 10 years. This estimate is conservative since it does not include the considerable indirect impact that increased funding would have on deterrence.
“Do not think for one second that the wealthiest country on Earth is unable to make critical investments to meet people’s basic needs in terms of healthcare, food security, education, and unemployment,” said Sanders. “Congress is leaving hundreds of billions of dollars in taxes uncollected from the wealthy. We have got to invest in a robust IRS that focuses on the biggest culprits of tax evasion so we can prioritize those resources to ensure people’s basic needs.”
Read the report here.