Editorial Roundup: Give IRS the tools to catch those who cheat

Published 9:00 pm Tuesday, May 25, 2021

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The Internal Revenue Service is not an agency that gets a lot of love — particularly at this time of year as Americans have just sent in their tax payments.

But everyone knows the IRS is vital to collecting the revenue the government needs to provide us with everything from bridges and highways to military protection and school lunch funding.

Now President Joe Biden is making the IRS a focus as he proposes to infuse the agency with $80 billion in new funding to hire more staff, replace its antiquated technology and create better procedures for collecting taxes owed but not paid.

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The IRS certainly needs to do some catching up after it was fiscally starved over much of the past decade. Beginning in 2010, a Republican-led Congress cut IRS funding and staffing by about 20%. That was welcome news for many in corporate America who saw audits fall by more than one-third.

Besides just collecting taxes, the IRS is responsible for tracking down tax cheats. But it has become badly outgunned as the very wealthy and big businesses have been able to hire more people to find new and creative ways to hide income, including in offshore accounts.

Collecting taxes from wage earners is easy. Studies show that more than 95% of wages are reported for taxation because of W-2 reporting. But when there is no third-party verification such as a W-2, profits are easily hidden by businesses and the super rich.

The Treasury Department says the “tax gap” between taxes owed and taxes collected is $600 billion a year, an amount estimated to be $7.5 trillion over the coming decade.

That’s why Biden believes a more robust IRS will be able to collect enough currently unpaid taxes to help pay for his ambitious infrastructure plan and reduce the deficit.

While a stronger IRS would certainly go a long way, other changes could dramatically increase the amount of taxes paid. Sen. Elizabeth Warren, D-Mass., wants to require banks and other financial institutions to send customer account balance reports to the IRS.

That’s an idea that’s been pushed by former IRS Commissioner Charles Rossotti, who says having such a third-party reporting system on businesses — just like the W-2 for wage earners — would allow the IRS to collect at least $140 billion of lost tax revenue per year. And all of that now uncollected money would come from the wealthiest Americans.

While Biden is pushing the idea of tracking down more unpaid taxes, Republicans have reason to support it as well as they are opposed to adding new taxes to pay for the infrastructure bill or other big legislation.

Collecting more of the taxes already owed under existing tax law is an easy and sensible way to raise needed funds and to restore more fairness in the tax system.

— Mankato Free Press, May 25