WHAT IS THE largest financial entity in the United States? The Federal Reserve sets the pace for global financial markets with its interest rate decisions. JP Morgan, a bank, has a balance sheet of $ 3.7 billion. Some argue that the United States Mint could help circumvent Congress’ cap on the national debt by minting a trillion dollar coin.
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And yet, it can be argued that the crown belongs to the Internal Revenue Service (IRS), whose massive $ 3.5 billion in revenue is more than six times the revenue of the largest private company. Its ancillary missions alone are broad, including overseeing private pensions, determining which institutions deserve tax-exempt status, and providing payments for many government grants, including $ 800 billion in covid-related aid. 19 paid to 160 million people. All this, despite their enormity, pales in comparison to its main mission: to collect 95% of federal revenues.
For the 56% of American adults who pay taxes, the IRS serves as the primary face of the US government with the right to investigate their most intimate financial affairs. This is a review that can obviously become more specific, as the Biden administration, seeking revenue to fund major spending plans, wants more money to bolster the agency’s enforcement, in the hope of finding hidden treasures.
Support for the effort comes from a report released in July 2020 by the Congressional Budget Office (CBO) estimating the “tax gap” – the difference between the amount owed and paid – between 2011 and 2013 at 14% of income. By adding $ 20 billion over the next decade to execution (a 40% annual increase from current levels), the CBO estimates collections would increase by $ 61 billion. Adding $ 40 billion would increase collections by $ 103 billion. Additional collections, the CBO positions, would come as a side effect of potential avoiders understanding their increased risk of being caught.
Increased funds for the IRS would be a turnaround after a decade of freezing (see graph). In the meantime, the number of employees in the IRSThe law enforcement agency fell 30%, audits of individual returns fell from 1.1% in 2010 to 0.6% in 2018, and audits of tax returns above $ 1 million went from 12% to 3%. All of this reflects a problem that extends beyond lost money. “Nothing is more destructive of respect for the government and for the law of the land than the adoption of laws that cannot be enforced,” Albert Einstein reportedly said.
Yet if the proposal meets with opposition, it is not only because of the threat of increased harassment from tax authorities, but also the suspicion that increased spending for a more intrusive agency could. not be the cause of the shortfalls. Taxpayers, according to the American Action Forum, a think tank, spend an average of 17 hours on preparation; more than half pay for professional help. The polls reliably show that Americans don’t like the process. Confusion reigns.
Only 3% of the 85 million calls to the main helpline for people baffled by their reports reached someone in the most recent fiscal year, says Nina Olson, a former IRS employee who now runs the Center for Taxpayers’ Rights. Confidence in the IRS was damaged by asking the agency to decide which groups should be tax exempt, which quickly becomes political. A decade ago the IRS removed the tax-exempt status of various Tea Party groups. Lois Lerner, who led the IRS department, was charged with contempt of Congress for refusing to answer questions about it. Then John Koskinen, a lawyer hired by the Obama administration to run the agency after the scandal, was also censored by Congress.
Republicans were seething, and many concluded that the expansion of enforcement activity was suicidal. In June IRS The tax returns of some of America’s richest citizens have been leaked to ProPublica, a group of investigative journalists, in an attempt to influence the tax policy debate. The result was a scintillating read and a further blow to the agency’s neutrality.
Enforcement money is expected to come from a spending bill passed by Democrats along party lines. Better, perhaps, would be a vast reorganization to eliminate ancillary activities and a simpler tax code. None of these things, however, are discussed.■
This article appeared in the United States section of the print edition under the headline “In Search of Income”