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Ahead of Tax Season, Rep. Peter DeFazio Introduces Legislation to Create Fairer US Tax System

Mar 12, 2020
Press Release
IRS Enhancement and Tax Gap Reduction Act Would Help IRS Collect Underpaid Taxes from Wealthiest Earners, Shrink “Tax Gap”

Ahead of tax season, Rep. Peter DeFazio (OR-04) has introduced legislation that would help the Internal Revenue Service (IRS) collect underpaid taxes from the top earners in the United States, leveling the playing field for working families and creating a fairer U.S. tax system.

“It’s not enough that our tax code gives billionaires and giant corporations huge tax handouts—the agency responsible for collecting the taxes these top earners actually owe is woefully underfunded and ill-prepared,” said Rep. Peter DeFazio. “Working families should not be forced to subsidize the tax bill for multi-billion dollar corporations and the wealthiest among us who aren’t paying their fair share. My bill would make significant investments in the IRS and mandate that the agency closely scrutinize these top earners.”

The IRS Enhancement and Tax Gap Reduction Act, H.R. 6076, would help the IRS shrink the “tax gap”—the difference between tax liabilities owed to the Internal Revenue Service and the liabilities that are actually collected. According to the Office of the Taxpayer Advocate, the tax gap averaged roughly $381 billion annually between 2011 and 2013. In 2018, the tax gap is estimated to have grown to more than $600 billion and is expected to grow over this decade. Seventy percent of this gap comes from underpayment from the top 1 percent. Meanwhile, the average U.S. household is paying more than $3,000 annually to subsidize taxpayers who aren’t paying all that they owe.

Rep. DeFazio’s bill would mandate minimum audit levels for high-income individuals as well as high gross-income corporations. In addition, the bill would significantly increase IRS funding levels over the next decade to ensure the agency has the funding it needs to ramp up enforcement, hire and retain additional staff, modernize a dated IT infrastructure, and increase taxpayer support services.

The IRS Enhancement and Tax Gap Reduction Act has been endorsed by the Center for American Progress (CAP) and Americans for Tax Fairness. CAP has today released a new report outlining the ways the IRS is losing hundreds of billions of dollars annually and undermining the tax collection system by failing to audit wealthy individuals and businesses. The report proposes a number of solutions to remedy this problem, including significantly increased IRS funding and targeted enforcement measures.

“The vast, vast majority of regular workers are honest on their taxes—in fact, they have no choice, because taxes come directly out of their paycheck,” said Seth Hanlon, Senior Fellow at the Center for American Progress. “But that's not the case for the wealthiest Americans and large corporations, who have many more avenues to dodge taxes, whether by outright cheating or aggressively exploiting loopholes that bend the law. Over the last decade, budget cuts and misplaced enforcement priorities have eroded the IRS's ability to police tax dodging by the wealthy and corporations—draining revenue needed for investments in our economy and adding to the sense that the system is unfairly rigged. Rep. DeFazio's bill tackles this issue head-on, by directing tax enforcement where it is needed most—toward millionaires and corporations—and by significantly boosting the IRS's capacity to enforce the law and assist ordinary tax filers. His bill is a bold step toward tax fairness and an economy that works for all.”

“This important legislation will give the IRS the tools needed to collect the hundreds of billions of dollars of taxes estimated to be owed by the rich and corporations,” said Frank Clemente, Executive Director for Americans for Tax Fairness. “It's an important step to raising the revenue needed to create an economy that works for all of us. If average Americans can pay all the taxes they owe, surely major corporations and their wealthy investors can be made to do the same.”

The IRS budget is roughly 20 percent below its peak 2010 inflation-adjusted budget. Since 2010, the agency has lost nearly 30,000 full-time positions, and the number of IRS auditors has decreased to levels last seen in the 1950s. This has resulted in plummeting audit rates and a significant increase in tax evasion.

Recent analysis suggests that a significant investment in the IRS, coupled with better-focused audits, could shrink the tax gap and raise more than $1 trillion in legitimately owed taxes over the coming decade, primarily from high-income individuals and corporations.