Event Recap: Tax Gap Myths and Facts: A Conversation with Natasha Sarin
On October 26, the Committee for a Responsible Federal Budget hosted “Tax Gap Myths and Facts: A Conversation with Natasha Sarin.” The virtual event featured a conversation between Natasha Sarin, Deputy Assistant Secretary for Economic Policy at the U.S. Department of the Treasury, and the Committee’s senior vice president and senior policy director Marc Goldwein. Sarin and Goldwein discussed the Biden Administration’s tax gap proposals, separated myth from fact, and took audience questions about efforts to close the tax gap and improve tax compliance.
You can find a video of the event here or below.
Goldwein opened the event with some facts about the tax gap – the difference between taxes paid and taxes owed by law. This gap totaled $550 billion in 2019, which is more than the gross annual revenue of Amazon, Walmart, Apple, or ExxonMobil. It’s also larger than the entire Gross Domestic Product of Sweden, Thailand, Argentina, or New Zealand. Over the next decade, the tax gap is likely to be larger than the amount the federal government will spend on Medicaid and Affordable Care Act (ACA) subsidies, and more than the revenue the federal government will collect from corporations, estates, excise taxes, and tariffs. Goldwein mentioned that every President since Ronald Reagan has put forward measures to reduce the tax gap and noted that the Biden Administration has made it a central priority. He then asked Sarin why improving tax compliance is such an important priority for the Administration.
Sarin stated that greater tax compliance can raise revenue and improve equity and fairness in the tax system. Providing additional funding to the Internal Revenue Service (IRS) gives it the resources it needs to pursue tax evaders and by giving the IRS greater access to information it will be better able to target its resources. Sarin explained that the Administration’s proposed information reporting regime would build on the information that banks already provide to the IRS with information about a subset of taxpayers showing the total amount of money that flows in and out of their bank accounts.
Sarin also pushed back on some of the misconceptions about the information reporting proposal. She clarified that greater information reporting is intended to help signal whether certain types of taxpayers who accrue income in opaque ways – through proprietorships, partnerships, and other income streams where there isn’t true third-party reporting to the IRS – are complying with their federal tax obligations. The IRS will not receive details on individual transactions, rather it will receive information on total aggregate dollars (excluding wages and government benefits) flowing in and out of an account over a dollar threshold that will be added to an existing form submitted from banks to the IRS.
She mentioned that Senate Finance Committee Chairman Ron Wyden (D-OR) has a proposal that builds on the tax compliance proposals the Administration put forth in its Fiscal Year (FY) 2022 budget. Sarin explained that Chairman Wyden's proposal would narrow the proposal to focus more explicitly on wealthy tax evaders. The threshold for reporting would be $10,000 or more of deposits and withdrawals in a year on top of wages and federal benefits. This would result in a collection of aggregated information once a year on a small subset of accounts – disproportionately owned by high-income (and non-wage) earners – which would be used to better target tax enforcement activities and reduce unnecessary audits.
The discussion then moved to the proposed $80 billion increase in IRS funding over the next decade. Sarin mentioned the IRS’s budget is down 20 percent in real terms over the last decade, along with its workforce. Moreover, the IRS is running on 1960s technology and does not have the personnel it needs to adequately deliver taxpayer services. The Administration arrived at the $80 billion figure by spending months with the IRS to understand its needs. Under the proposal, the IRS would grow by about 10 percent per year. Importantly, a mandatory funding stream over a decade means the IRS will have the financial security it needs to make investments with high fixed costs.
Goldwein asked what can be done to give critics of the Administration’s proposals and Americans confidence that their tax information won’t be leaked. Sarin noted that the Administration’s proposals would actually help ensure taxpayer data stays private and secure. The proposed $80 billion boost in IRS funding would not only give the agency the resources it needs to modernize its technological infrastructure, but would also provide it with the tools it needs to meet today’s economic challenges and to protect against any data security threats. In a similar vein, Sarin mentioned that investments in taxpayer services could help allay taxpayers’ current concerns and frustrations with the IRS, potentially boosting taxpayer compliance while also improving the public’s perception of the IRS as a whole.
Sarin concluded by saying the Administration’s proposals would be durable because they would give the IRS the resources it needs to rebuild and modernize, and would be insulated from political whims as any reforms would difficult to roll back.
The Committee for a Responsible Federal Budget wishes to thank to all those who participated in and attended the event.
Learn more about the tax gap by checking out our in-depth analyses:
- Primer: Understanding the Tax Gap
- Chartbook: Reducing the Tax Gap
- Republican and Democratic Presidents Support Reducing the Tax Gap
- Biden Tax Gap Proposal Deserves Bipartisan Consideration
- Group of Senators Introduce Bill to Narrow the Tax Gap
- Policymakers Must Avoid Budget Busting Summer
- Maya MacGuineas on Fox Business Discussing the Growing National Debt
- There Are Plenty of Offsets for Infrastructure Package
- What's In the Bipartisan Infrastructure Plan?
- Breaking Down the Proposals in the President's FY 2022 Budget
- What's in President Biden's American Families Plan?
- Opportunities for Bipartisanship in a Divided Government
- President's Budget Gets Serious About Cutting Waste, Fraud, and Abuse
- Tax Gap Resources