The “tax gap,” or the difference between taxes owed and taxes paid, is emerging as one of the few conceivable ways to finance a big chunk of President Biden’s infrastructure priorities if both sides truly dig in on their “red lines” on taxes.
Mr. Biden talked up his idea to beef up the IRS to go after tax cheats this week and suggested it’s something he can see Republicans supporting.
The president said figuring out how to close the tax gap through stepped-up enforcement could generate between $700 billion and $1.3 trillion in revenue for the federal government.
“Let’s say it’s somewhere in between. That’s a trillion dollars. I’m confident they would go for that,” the president told MSNBC.
House Speaker Nancy Pelosi also touted the issue after a meeting at the White House on Wednesday with Mr. Biden, Senate Majority Leader Charles E. Schumer of New York, Senate Minority Leader Mitch McConnell of Kentucky and House Minority Leader Kevin McCarthy of California.
“Some of the things that we did talk about were the fact that there are so many unpaid taxes in our country,” said Mrs. Pelosi, California Democrat.
She said the estimated $1 trillion or so “could pay for a big piece of this.”
The White House estimates that the federal government could generate roughly $700 billion in revenue over 10 years through an enforcement scheme that involves additional funding for the IRS to target unpaid taxes and increased account flow reporting requirements for banks.
Republicans have rejected Mr. Biden‘s proposals to raise corporate and individual income tax rates to pay for his $4 trillion-plus infrastructure and “families” plans.
Mr. Biden, meanwhile, says he’s not big on “user fee” proposals Republicans have floated as another way to pay for the new infrastructure spending.
Short of deficit spending, the competing lines in the sand are leaving lawmakers with a very narrow playing field on possible ways to pay for a package.
Sen. Mike Crapo of Idaho, the top Republican on the Senate Finance Committee, wrote to IRS Commissioner Charles Rettig this week asking for further clarification on Mr. Rettig’s past estimate that the annual tax gap could be as high as $1 trillion.
“What I am trying to do is establish a higher level of confidence of what that tax gap is and what it is composed of,” Mr. Crapo said ahead of a meeting at the White House on Thursday with other Republican senators. “I am very willing to take reasonable steps to assure that those who owe taxes pay those taxes, but I don’t know what Nancy Pelosi’s specifics are on what or how.”
Conservatives are wary of plans that grant more power and authority to the IRS and say the White House’s revenue estimates are overblown.
“If the rhetoric is to [be] believed, auditing a bunch of fat cats to yield billions in tax dollars just doesn’t stand up to any kind of historical examination,” Pete Sepp, president of the National Taxpayers Union, said in a recent interview. “I mean, the bigger the audit, the longer it takes and the more it’s going to be contested.”
Mr. Sepp co-authored a study, released Thursday, that estimated the annual tax gap is closer to $400 billion after factoring in late payments and enforcement efforts.
That’s not chump change, but it doesn’t come close to financing all of Mr. Biden’s domestic spending agenda if Republicans hold the line on the president’s other proposed tax increases and Mr. Biden doesn’t entertain increases in the gas tax or on electric vehicles.
“Wherever the tax gap is on the spectrum between $381 billion and $1 trillion, however, the simple truth is that there is no plausible path to reducing it to zero,” reads the report from the National Taxpayers Union Foundation. “The herculean administrative efforts required to do so, and the intrusive and economically damaging actions that are imposed upon taxpayers in the process, render it an impossibility.”
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