President Biden’s proposed tax hikes and plan to hire more than 80,000 additional Internal Revenue Service employees could help the super-rich avoid their fair share, according to a new analysis.
The new system of tax hikes and credits, which the Democrats are advocating for $ 1.75 trillion in welfare and climate legislation, would also complicate the tax law and make it harder to enforce, according to a report by the libertarian Cato Institute from Thursday.
The new complications, regardless of tightened enforcement, are not helping to bridge the gap between taxes owed to the federal government and the amount actually paid, said Chris Edwards, director of tax studies at Cato.
“The Democrats want to step up enforcement on the IRS to reduce the tax gap, but their tax plan would add complexity to the tax laws, which would lead to the opposite,” he said. “The complexity of tax codes increases tax avoidance and evasion by making IRS difficult to administer and by causing taxpayers to combine different provisions in unexpected ways.”
A bloated tax code and IRS bureaucracy only make it easier for the super-rich to pursue tax avoidance routes. A prime example are the rich who use loopholes and deductions to lower their overall tax burden, he said.
Economists say that additional enforcement measures do little to solve the problem. Instead, it only offers an incentive for the wealthy to litigate at a significant cost to the taxpayer until an appropriate settlement is reached. In most cases, the costs of the settlement and legal fees are still significantly less than the initial tax burden.
Tax enforcement is made even more difficult by the hundreds of new tax credits and deductions the Democrats want to include in Mr Biden’s major bill. The list, which includes everything from healthcare to green power tax credits, expands and confuses the tax code.
The Congressional Budget Office, a bipartisan federal agency tasked with analyzing laws, said so in a recently released report.
“The complexity of the Tax Code makes it difficult to comply with regulations and increases potential disputes with the IRS,” the CBO said. “Eligibility requirements for certain tax breaks can be confusing and make it difficult for taxpayers to determine their tax liability.”
The Democrats have long wanted to expand the scope and capabilities of the IRS.
Administration officials said hiring more IRS agents will help ensure the rich are paying their “fair share” by signaling that the government is committed to proper tax enforcement.
“When you focus on audits and people see audits happening … you have better compliance,” said Assistant Secretary of the Treasury Wally Adeyemo. “When they see more [agents] If you look at the tax returns, people will decide that it is better to pay than to end up paying the fine. “
The White House estimates that by adding more than 80,000 new IRS agents, the government will collect around $ 400 billion in unpaid taxes over the next decade.
Republicans dispute the accuracy of this number. They argue that the real goals of stronger enforcement by the IRS will ultimately be average Americans who cannot afford to pay the legal fees required to challenge an exam.
“They want to fund their buying spree by effectively treating every common American as if they are undergoing an IRS review,” said Senate minority leader Mitch McConnell, Republican from Kentucky. “I must have forgotten when the president advocated giving everyone their own exam.”