Warren offers bill to increase IRS budget to $31.5 billion

Warren offers bill to increase IRS budget to $31.5 billion
© Greg Nash

Sen. Elizabeth WarrenElizabeth WarrenRestless progressives eye 2024 Poll: Harris, Michelle Obama lead for 2024 if Biden doesn't run Biden eyes new path for Fed despite Powell pick MORE (D-Mass.) on Monday introduced legislation that would increase the IRS's budget to $31.5 billion in order to bolster the agency's efforts to go after wealthy people who are not paying the taxes they owe.

The bill's introduction comes after President BidenJoe BidenBiden to provide update Monday on US response to omicron variant Restless progressives eye 2024 Emhoff lights first candle in National Menorah-lighting ceremony MORE offered his own proposal to boost IRS funding and as policymakers view strengthening tax enforcement as a way to pay for infrastructure spending that could have bipartisan appeal.

"For too long, the wealthiest Americans and big corporations have been able to use lawyers, accountants, and lobbyists to avoid paying their fair share — and budget cuts have hollowed out the IRS so it doesn't have the resources to go after wealthy tax cheats," Warren, a member of the Senate Finance Committee, said in a statement. "The IRS should have more — and more stable — resources to do its job, and my bill would do just that."

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The IRS's budget is substantially lower on an inflation-adjusted basis than it was at its peak in 2010. Budget cuts to the agency in the early part of the last decade led to a decline in staffing levels and audit rates, including for wealthy individuals and corporations.

Warren's bill would remove the IRS's core budget from the annual appropriations process and would instead provide it with mandatory funding in an effort to make its budget more predictable. The budget would be $31.5 billion for fiscal 2022 — an amount that would be more than double the agency's budget in 2010 after adjusting for inflation and is much higher than the enacted level for this year of $11.9 billion. The budget would be adjusted for inflation in subsequent years.

The IRS could use the funds provided to it in Warren's bill for taxpayer services, enforcement and technology updates.

Warren's bill would also increase the amount of information that financial institutions have to report about account activity to the IRS in an effort to help the agency verify information on taxpayers' filings.

The bill would also direct the IRS to submit annual reports to Congress that include information about its efforts to shift more of its auditing to high-income individuals and corporations, estimates of the "tax gap" between taxes owed and taxes paid, and analyses about whether there are any racial disparities in the agency's enforcement activities.

Additionally, the bill would increase underpayment penalties for taxpayers with income above $2 million.

Warren's proposal has similarities with one that Biden has offered as a way to pay for his economic recovery plans. Biden, however, called for providing the IRS with an additional $80 billion over 10 years, less than what Warren is seeking.

Like Warren, Biden has also proposed to increase third-party reporting from financial institutions. The Biden administration has estimated that its IRS proposals would raise $700 billion in revenue.

The Treasury Department estimated that the gap between paid and owed taxes was about $600 billion in 2019, and IRS Commissioner Charles Rettig has suggested that it could be as high as $1 trillion annually.

Both Democrats and Republicans have expressed interest in narrowing the tax gap, so increasing IRS enforcement is seen as a way to pay for infrastructure investments that could get more bipartisan support than other options, such as raising corporate taxes.

However, some Republicans have expressed skepticism about giving the IRS a significant funding increase, and GOP lawmakers have also expressed concerns that efforts to increase enforcement could infringe upon taxpayers' rights.