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- Sen. Elizabeth Warren introduced a bill to provide $31.5 billion annually to the IRS budget.
- The funding would help close the tax gap between taxes owed and paid and hold the wealthy accountable, she said.
- The Treasury Dept. recently said the tax gap could rise to $7 trillion over a decade if unaddressed.
- See more stories on Insider's business page.
Audit rates for the wealthiest Americans are nearly 80% lower than they were a decade ago, driving the tax gap to an estimated $1 trillion annually. Sen. Elizabeth Warren of Massachusetts wants to close that gap and hold the wealthy accountable by strengthening the budget of the Internal Revenue Service (IRS).
On Monday, Warren introduced the Restoring the IRS Act of 2021, which would remove the agency's base budget from the annual appropriations process and provide $31.5 billion in mandatory funding. This would nearly triple the IRS budget – it received $11.9 billion from Congress for fiscal year 2021. Warren's press release said this funding would help close gap between the taxes wealthy people owe and what they actually pay through more staffing and stricter enforcement.
"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," Warren said in a statement. "The IRS should have more – and more stable – resources to do its job, and my bill would do just that."
According to a bill summary, the legislation would improve tax compliance by:
- Requiring new third-party reporting from financial institutions to help the IRS verify tax filings;
- Requiring the IRS to shift audits toward wealthy tax filers and corporations;
- Requiring the IRS to annually report the tax gap;
- Requiring the IRS to analyze racial disparities in tax enforcement;
- And increasing penalties for underpayment for taxpayers with incomes above $2 million.
The Treasury Department released a report last week that found the tax gap totaled nearly $600 billion in 2019 which, if left unaddressed, could rise to $7 trillion over the course of the next decade.
IRS Commissioner Charles Rettig addressed the tax gap in April, telling Congress that it could be much higher than the agency's official estimate of $441 billion, due to the lack of accounting for things like virtual currency. "I think it would not be outlandish to believe that the actual tax gap could approach and possibly exceed $1 trillion per year," Rettig said.
President Joe Biden proposed $80 billion in IRS funding in his American Families Plan, a $1.7 trillion proposal that forms roughly half of his infrastructure plans. With this potential funding the department has proposed actions similar to what Warren has, such as strengthening third-party reporting. Warren's funding would be separate from Biden's proposal and would establish annual instead of one-time funding for the agency.
Insider calculated that Biden's proposed $80 billion in additional funding for the IRS could still leave $922 billion of Rettig's hypothetical $1 trillion in taxes uncollected.
Warren has long been a proponent of closing the tax gap and holding the wealthy accountable. She has called for audits of the ultrawealthy every three years, and she introduced the Ultra-Millionaire Tax Act in March, which would tax the top 0.05% of American households.
"The 99% in America paid 7.2% of their total wealth in taxes last year, while the top 0.1% paid only 3.2%," Warren wrote on Twitter last week. "The wealthy and well-connected need to start paying their fair share."