According to recent research from the US Department of the Treasury, the wealthiest 1% of Americans may be avoiding as much as $163 billion in annual taxes.
Natasha Sarin, the department's Deputy Assistant Secretary for Economic Policy, found in the study published earlier this week, that this estimate increases the so-called tax gap, the difference between what is owed and what is collected — to $600 billion every year.
The Treasury specialist did not specify income levels in its analysis of the top 1%, but suggested that the lost revenue is at least equal to all taxes paid by the bottom 90% of taxpayers. With the richest Americans owing, according to report estimates, some 28% of all uncollected income tax.
Sarin stated that the IRS is unable to collect at least 15% of outstanding taxes, and argued for an additional $80 billion in IRS spending over the next decade, as well as new "compliance initiatives" capability. According to the Biden administration economist, these reforms will yield an additional $780 billion in tax income over the next decade.
"In the subsequent decade, once the overhaul of the IRS is complete, these proposals combined will generate even more revenue: an estimated $1.6 trillion in additional tax revenue, just from improved collection of the taxes that are already due," Sarin emphasized. "This revenue will be collected in a highly progressive way, as the tax gap is more concentrated toward the top of the income distribution."
The White House has proposed investing $80 billion in the IRS over the next ten years to hire additional enforcement personnel, upgrade technology, and implement new information-reporting requirements that would give the government a better understanding of the methods of tax evasion.
"For the IRS to appropriately enforce the tax laws against high earners and large corporations, it needs funding to hire and train revenue agents who can decipher their thousands of pages of sophisticated tax filings," Sarin wrote. "It also needs access to information about opaque income streams — like proprietorship and partnership income — that accrue disproportionately to high earners.”
According to the research, low- and middle-income workers who have their taxes withdrawn automatically from their paychecks have a high rate of tax compliance. The wealthy, on the other hand, reportedly take advantage of accounting flaws to avoid paying taxes.
Earlier, the US government pledged that individuals with "actual income" of less than $400,000 per year would not see their audit frequency increase.
On Wednesday, US President Joe Biden argued in defense of his so-called Build Back Better Agenda, asserting that $163 billion in unpaid taxes is "unacceptable" and pledging to invest in the development of the American middle class.
According to the Center on Budget and Policy Priorities, IRS funding has decreased by 19% since 2010. Between 2010 and 2020, the agency lost around 33,378 full-time employees.
In June, a ProPublica investigation on tax records provided by an anonymous leaker highlighted how some of America's wealthiest, like Jeff Bezos, Elon Musk, and Warren Buffet, pay only cash income tax, pennies from their annual gains, claiming that there should be a means to tax the rising value of stocks before they are sold.
The report added to pressure existing around the case for the 'wealth tax,' which has been backed by certain Democrats, including Massachusetts Senator Elizabeth Warren. The outlet did not suggest that billionaires are engaged in wrongdoing, but express disappointment that their vast net worth is not taxed, in addition to their enormous income.