WSJ: Tale of woe at the IRS; how to raise an additional trillion dollars

The article below is an oped. The day it came out the Journal had a long feature article about the internal revenue service and the attempt to reform and expand it's tax collecting. Unfortunately you have to be a subscriber but anyone interested can email me or leave a comment and I'll send the article - Administration seeks more money for enforcement and other tasks; fixes needed for problem-plagued system

Here's the op ed -

Internal Revenue Service Commissioner Charles Rettig told the Senate Finance Committee last week that the annual gap between taxes owed and taxes paid could be as much as $1 trillion. The so-called tax gap has doubled over the past decade, as IRS resources shrank. The number of IRS employees has declined by 33,000, with more than half of the decrease coming in the hard-pressed enforcement division. As a result, Mr. Rettig says, the IRS is “outgunned.” Official statistics underscore the point, particularly on wealthy filers and corporations. Between 2011 and 2018, the share of returns audited fell by nearly half. For filers earning more than $1 million, audits fell by 74%; for corporations, 42%.

But it’s also too easy for taxpayers to underreport their income. Noncompliance rates are less than 5% when the IRS has information from, say, banks that it can use to check taxpayers’ filings. Without such information, only 45% of unreported income ends up taxed. In addition, the IRS is forced to rely on obsolete technology. For example, the IRS receives Schedule K-1 forms, which report income from partnerships and pass-through entities, but it doesn’t have the technology to match these reports to individual tax filings.

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The principle underlying this initiative—individuals and corporations should pay what they owe—enjoys near-universal support across party lines. The extra revenues could fund much of President Biden’s agenda, without breaching his campaign pledge not to raise taxes on households making less than $400,000 a year or requiring Republicans to walk back their 2017 tax bill.

It sounds too good to be true, but experts think it’s doable. Working with economists and information technology experts, former IRS Commissioner Charles O. Rossotti has developed a detailed plan to reduce the tax gap. At a total cost of $64 billion, Mr. Rossotti estimates that a 10-year program to rebuild the IRS would boost tax revenues collected by $1.4 trillion over this period, a return of $22 for each dollar invested.

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Implementing a plan of this scope would require support from the White House, congressional action, and obscure but important rule changes. For example, current rules prevent the Congressional Budget Office from including revenue gains from tax compliance when estimating the fiscal impact of IRS modernization programs. Congress is less likely to act if the plan appears to increase the budget deficit.

No doubt corporations and high-earning individuals will protest the increased burden of tax compliance. But Mr. Rossotti reports that during his term as commissioner, he was visited by tax-compliant businesspeople complaining that they couldn’t compete against the tax evaders in their industry. Not only would a more efficient and effective IRS increase revenues; it also would bolster the rule of law and enhance public confidence in the fairness of the system.