“This bill won’t speed up our return to normal,” says House Minority Leader Kevin McCarthy (R-Calif.), admitting normalcy is returning, before adding that the bill will “burden future generations with unnecessary debt.”
As the New York Times reports, Republicans are betting voters will become “disillusioned with the scope and price of the plan,” and “punish Democrats accordingly.”
Here’s a way for Biden and Democrats to counter this attack: move to increase funding for the Internal Revenue Service so it captures some of the trillions of dollars in revenue that are expected to go uncollected in the next decade.
This is more than just good politics. It could also help bolster voters’ faith in public spending and progressive governance at a moment of great opportunity to seize on momentum from passage of Biden’s plan to do a lot more of both.
With Democrats set to propose more government expenditures — such as on infrastructure — moderate and centrist Democrats will also raise deficit alarms. This offers a partial answer.
The case for IRS reform is spelled out in a good piece by New York University tax expert Chye-Ching Huang. A decade’s worth of IRS budget cuts have cost taxpayers trillions of dollars:
The agency is increasingly unable to detect or address blatant tax cheating by high-income filers and the largest businesses. In February, the I.R.S. commissioner, Charles P. Rettig, told Congress that about $570 billion in taxes owed in 2019 were not paid. That tax gap is projected to total about $7.5 trillion over this decade.
As Huang reports, the agency is so depleted that it often doesn’t follow up on tax-dodging by high-income people that it knows about, and big corporations and the wealthy are extremely skilled at using legal complexities to frustrate audits and evade taxes.
This creates a big opening, Huang argues:
Mr. Biden and the treasury secretary, Janet Yellen, have pledged to rebalance tax enforcement, and this spring presents a chance to deliver. Any responsible recovery package would include a multiyear stream for rebuilding the I.R.S. Fully funding the agency would defeat tax cheats while raising revenue for critical investments. It would help the overwhelming majority of Americans who want to pay whatever they owe. It would help honest businesses better thrive and compete. And restaffing the I.R.S. through restored funding would help fight corruption and strengthen the rule of law.
But this also would provide a weapon against deficit-scolding going forward. Republicans are betting on voters getting checks and vaccines and enjoying the recovery — and over time forgetting how that all happened, after which Republicans will point to deficits and scream that Democratic profligacy is destroying the country.
“If Republicans are truly concerned about rising deficits, it should be a no-brainer to collect taxes that are owed from people and companies that are cheating the system,” Seth Hanlon, a tax expert at the Center for American Progress, tells me. “You can do this without raising rates.”
Hanlon says the next big recovery package, when concerns about spending will again draw wide attention, would be the perfect vehicle.
“It’s one of the more obvious ways to raise revenues to pay for investments,” Hanlon says. With enforcement failure projected to leave a $7.5 trillion gap in uncollected taxes over the next decade, “even closing it by a quarter would be a tremendous amount of revenue.”
The larger political context is also key. Under former president Donald Trump, Republicans passed a massive tax cut that blew up the deficit to shower benefits on corporations and the wealthy. That makes the deficit-mongering even more absurd.
But it also shows that, generally speaking, Republicans want a more regressive tax structure, and Democrats want a more progressive one. A debate over funding the IRS would also highlight this contrast, because failing to do so generally helps the wealthy and big corporations pay less.
“The IRS’s priorities are upside down,” Hanlon says. “The audit coverage of rich people and corporations has absolutely plummeted over the last decade. Meanwhile, audits of working people have stayed relatively stable.”
In fairness, there is a real opportunity to do something bipartisan. Some Republicans have expressed an openness to beefing up IRS enforcement, Hanlon notes, and Trump officials did generally back the idea. It just never went anywhere in Congress.
What’s more, if the next big package is infrastructure, it might get some GOP support. If Republicans are willing to pay for that, they might back IRS reform to bring in more revenue.
There is an even bigger reason to do this now. Large majorities support a package nearly three times the size of the 2009 stimulus. Importantly, majorities don’t just support getting checks and vaccines — they also support its general spending levels.
So we may be seeing a genuine shift in favor of large government expenditures and ambitious progressivism, helped along by the scale of the crises facing the country.
By tackling the ways elites game the system with impunity — exactly the sort of thing right-wing populists demagogue to turn people against liberal governance — beefing up tax enforcement could bolster faith in the general project of paying taxes to secure public goods and solutions to large public problems.