DailyBubble News
DailyBubble News

Bank Tax Reporting Is a Critical Component of Biden’s Build Back Better Agenda


The United States will lose an estimated $7 trillion over the next decade from people and corporations not paying the taxes they owe. That is twice the $3.5 trillion of investments that Congress is now considering in the budget reconciliation bill.

The richest 1 percent of taxpayers alone are responsible for an estimated $163 billion in unpaid taxes each year. Yet, due to Internal Revenue Service (IRS) budget cuts, the IRS has lost thousands of experienced enforcement personnel capable of thoroughly examining complex tax returns. Audit rates of high-income Americans and the largest corporations have plummeted, draining revenue and resulting in an increased share of examinations focused on recipients of the earned income tax credit (EITC), who are much more inexpensive for the IRS to audit. The status quo benefits wealthy tax cheats to the detriment of ordinary Americans. It also reinforces economic inequality, including the stark income and wealth inequities by race.

President Joe Biden’s plan to improve tax enforcement is aimed squarely at fixing the broken and unjust status quo. The Biden plan has two main components: One is to fund IRS enforcement of high-income individuals and corporations, modern technology, and better taxpayer service; the second is to give the IRS greater visibility into opaque forms of income by requiring banks and other financial institutions to report very basic information about accounts.

This column explains how the bank information reporting proposal will:

  • Alleviate the United States’ two-tiered system of tax compliance
  • Preserve taxpayers’ privacy
  • Enhance the IRS’ ability to detect indications of cheating
  • Result in fewer audits for honest taxpayers and small businesses
  • Raise revenue for essential investments

The House Ways and Means Committee will begin to consider the tax provisions of the Build Back Better legislation starting tomorrow. Currently, the bank reporting proposal is not included in the committee’s draft legislation because members of Congress continue to work out details. Given its critical importance, Congress must incorporate the bank reporting proposal into the legislation as it progresses.

The current two-tiered system of tax enforcement favors the wealthy over workers

Workers’ wages and salaries are subject to third-party information reporting: Your employer is required to send matching copies of the W-2 to you and to the government showing exactly what you were paid. By contrast, the income received by businesses such as partnerships, S-corporations, and proprietorships—which flows heavily to the top end of the income distribution—is often not reported to the IRS by third parties. Consequently, taxpayers often do not report it on their tax returns.

The result is a two-tiered tax system where virtually all workers’ wages are properly reported but business owners misreport income at shockingly high rates. (see Figure 1) The Biden proposal is aimed at leveling this two-tiered system so that ordinary Americans have greater confidence that others are not cheating while they pay full freight.


The Biden tax enforcement plan advances racial equity by addressing the unjust status quo

Recent trends in tax enforcement have worsened racial inequities. By slashing the IRS’ budget, Congress has eviscerated the agency’s ability to go up against wealthy individuals, who are disproportionately white, and large corporations, whose executives and shareholders are disproportionately white. As tax scholar Dorothy Brown writes, “[R]ich white Americans tend to get tax rules designed for their benefit. Quashing the funding that could have helped the IRS more aggressively pursue elite tax fraud is yet another example.” Without the resources to pursue “elite” tax fraud, the IRS has focused an increased share of its audits on low-wage workers claiming the EITC, who are disproportionately people of color.

President Biden’s plan is aimed squarely at fixing this unjust status quo. It equips the IRS to adequately examine the complex returns of wealthy individuals and corporations while ensuring that audit rates for people earning under $400,000 will not go up. As the Center for American Progress wrote in June:

These shifts in priorities would mean a smaller share of overall audits would be of low-income filers, who are disproportionately filers of color, and refocus the agency’s efforts on high income individuals—who are disproportionately white—as well as corporations.

As a coalition of organizations dedicated to racial equity wrote in a letter to Congress today:

The budget reconciliation package would provide more resources to the IRS to increase enforcement against wealthy tax cheats who evade paying what they owe, a group that’s mostly…



Read More: Bank Tax Reporting Is a Critical Component of Biden’s Build Back Better Agenda

Subscribe
Notify of
guest
0 Comments
Inline Feedbacks
View all comments

Get more stuff like this
in your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.

Thank you for subscribing.

Something went wrong.