ICYMI: Washington Post: Opinion: IRS reform will generate a lot more revenue than the CBO thinks
November 18, 2021
|Key Point: “The largest offset in the Build Back Better Act is not a tax increase. Instead, it is an $80 billion investment to restore a depleted IRS… I am confident that the proposed investments can generate much more revenue than the CBO assumes.”
Washington Post: Opinion: IRS reform will generate a lot more revenue than the CBO thinks
By Lawrence H. Summers
November 17, 2021
The largest offset in the Build Back Better Act is not a tax increase. Instead, it is an $80 billion investment to restore a depleted IRS. The Treasury Department expects this transformative investment to generate $480 billion — $400 billion net — in additional tax collections over the course of the next decade.
That is a large sum. But it is important to put it into context given the scope of the tax evasion problem faced by the federal government. Over the next 10 years, the IRS is on track to collect $7 trillion less than is owed. This enormous tax gap is around 3 percent of gross domestic product on an annualized basis. President Biden’s proposal to revitalize the IRS is projected to net an amount that is merely 5.7 percent of that tax gap.
That modest gain is a more-than-reasonable expectation given the starting point. Today, the IRS has about the same number of auditors as it did during World War II, and the IRS can answer fewer than 30 percent of the phone calls it receives from taxpayers with questions. IRS technology is woefully outdated, and it fails to allow for even simple data analytics to identify evaders. Providing the IRS the resources it needs will go a long way towards shrinking the tax gap.
Yet the Congressional Budget Office is soon to release its estimate of these efforts, which it is likely to score at netting less than half the Treasury number — some experts expect the final CBO estimate to be around $150 billion.
In general, I believe policy should be set on the basis of official scorekeeping by nonpartisan scorekeepers. But, in this case, it would be irresponsible to not recognize that the CBO estimate for tax-compliance efforts is conservative to the point of implausibility. Assuming the administration is successfully able to develop and implement sound plans for the IRS — which will require substantial management and strategic planning to go with the new resources — I am confident that the proposed investments can generate much more revenue than the CBO assumes.
There is a reason that a bipartisan group of former Treasury secretaries and IRS commissioners (including the current commissioner, appointed by the prior administration) have coalesced around overhauling the IRS. Nothing is more important for tax reform efforts.