Treasury Secretary Janet L. Yellen is pressing Representative Richard Neill, the Democratic chairman of the Ways and Means Committee, to include the Biden administration’s full proposal to increase the Internal Revenue Service in its $3.5 trillion spending package, arguing that More resources and more powers to reduce the “tax gap” is the key to catching tax evaders.
In a letter to Neil, Ms Yellen urged lawmakers not to dilute a central piece of the proposal, which would give the Internal Revenue Service visibility into taxpayers’ financial accounts through more robust reporting requirements. Treasury officials say this will help the agency take better action against wealthy people and companies that are not paying their dues.
Legislation released earlier this week by House Democrats included $80 billion in additional funding for the IRS, which the Biden administration proposed to help expand staffing and enforcement capacity. However, a separate proposal to introduce an “information reporting” regime was absent from the bill.
“As you consider specific policy options in designing the information reporting regime, it is important to ensure that the reporting regime is sufficiently comprehensive, so that tax evaders are not able to structure financial accounts to avoid, Ms Yellen wrote. “Any suggestion that this reporting regime would instead be used to target enforcement efforts at ordinary Americans is completely misguided.”
Critics of the proposal have argued that giving the IRS more power to view taxpayer financial information represents an invasion of privacy, saying it could lead to frivolous audits for political reasons. The Biden administration insists that audit rates will not increase for taxpayers earning less than $400,000.
In an addendum to the letter, the acting assistant secretary of the Treasury for tax policy, Mark J. Mazur reiterated Treasury estimates that investment in enforcement staff and new information reporting powers could generate $700 billion in government revenue over a decade. He suggested that Congress might consider incorporating a more modest reporting mechanism and warned that doing so would be less effective.
“Clearly, this would reduce the estimated revenue raised from the proposed reporting arrangement relative to estimates from earlier administrations,” Mr Mazur wrote.
At a hearing on Wednesday, Mr Neil said he had received letters underscoring the importance of strengthening tax enforcement without adding new burdens to small businesses.
“We are in talks with the administration on reporting proposals that target sophisticated tax avoidance and evasion without affecting middle class and working Americans,” Mr. Neal said.