An ‘epidemic of tax fraud’

As President Biden prepares to introduce more government spending plans, the price tag is rising. Economists are busy devising ways to pay for it all — and The Times’s editorial board is backing a novel approach that could capture huge amounts of uncollected taxes.

There are hundreds of billions in unreported taxes. A 2019 I.R.S. analysis estimated that Americans reported less than half of all income that wasn’t subject to verification like a W-2, meaning that lots of business profits, rent and royalties go untaxed. That’s the largest reason that unpaid federal income taxes may amount to more than $600 billion this year, and more than $7.5 trillion over the next decade.

A new research paper estimates that the top 1 percent of households fail to report about 21 percent of their income, hidden in offshore businesses, partnerships and pass-throughs. “There is more revenue than you might have thought at the very top,” Daniel Reck of the London School of Economics, the paper’s lead nongovernment author, told The Wall Street Journal.

Here’s a way to capture that unreported income, proposed by Charles Rossotti, a former I.R.S. chief: a new form, drawn from bank account data, that reports inflows and outflows like a 1099 statement. Filers would need to reconcile that information with their individual tax returns. “It would have the immediate benefit of scaring people into probity,” The Times’s editorial board asserts. The proposal wouldn’t increase how much anyone owes in taxes, just how much people end up paying.
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The White House is already planning to collect more taxes, which may include raising rates on income and capital gains taxes for those earning more than $400,000, as well as levies on companies and expanding the estate tax. Charles Rettig, the commissioner of the I.R.S., also backed calls for more funding for enforcement: “It is not just a body count of how many people we have in enforcement. We need to have specialized agents.”

Mr. Rossotti, with the economist Larry Summers and the law professor Natasha Sarin, argued in an analysis in November that a $100 billion investment in the I.R.S. over the next decade, for personnel and technology, would allow it to rake in more than $1 trillion in taxes that would otherwise go uncollected.
The New York Times