President Joe Biden’s plan to raise $700 billion over a decade from increased tax audits of the wealthy and corporations—a major funding source for his economic-investment proposals—will probably take years to bear fruit and faces skepticism that the figure is realistic.
The Biden administration has proposed a more than 10% funding increase for the Internal Revenue Service for the next fiscal year and an overall investment of $80 billion over the next 10 years to beef up the agency’s depleted auditing staff and outdated technology. Biden’s American Families Plan, released last week, highlighted the audit take as a principal way to pay for $1.8 trillion in initiatives including child care and education.
But some former IRS officials said it will take several years to produce significant results, especially after accounting for the time it takes to hire and train new employees and to complete audits of highly complex returns. Moreover, such audits are prone to appeals and litigation that could tie up any payments for additional years, and past efforts to recoup unpaid taxes have returned a tiny fraction of what Biden envisions.
“It will take some considerable period of time, even if IRS gets that funding, to actually show material results or returns on that investment,” said former IRS Chief Counsel Michael Desmond. Desmond left the agency at the beginning of this year and has joined Gibson, Dunn & Crutcher LLP.
A person familiar with the administration’s plans said the $700 billion projection does reflect that the IRS will need several years to ramp up and that the highest revenue-raising years will be toward the end of the 10-year timeframe. The administration predicts some of the biggest gains will come in the following decade, raising as much as $1.7 trillion to $1.8 trillion during that period, the person said.
The person, who asked to remain anonymous in order to speak freely about the administration’s plans, said the predictions are conservative because they don’t factor in gains from better IT and the overall deterrence effect of increased enforcement.
Nina Olson, the former head of the IRS’s Taxpayer Advocate Service, said she’s skeptical of the $700 billion revenue projection.
She noted the IRS’s offshore voluntary disclosure program that ran from 2009 to 2018 raised a total of $11.1 billion, or averaging just over $1 billion a year. The program, which came at the height of the Swiss bank crackdown, allowed taxpayers with undisclosed foreign assets to come clean and pay the taxes and penalties they owed in exchange for avoiding criminal prosecution.
A University of Pennsylvania report released Wednesday estimates $480 billion in revenue over a decade from the Biden administration’s proposed enforcement effort.
Former IRS Commissioner Charles Rossotti, however, called the $700 billion goal conservative and said $1.4 trillion is realistic given Biden’s proposal to expand information reporting by third parties and IRS technology.
A Treasury Department spokesperson declined to comment.