Treasury Secretary Janet Yellen said a “shocking” amount of taxes are going uncollected by the federal government, and urged additional action to fetch this money from the wealthiest Americans.
“It’s really shocking and distressing to see estimates suggesting that the gap between what we’re collecting in taxes on current tax and what we should be collecting — if everybody were paying for taxes that are due — that amounts to over $7 trillion over a decade,” Yellen said in an interview with The Atlantic published on Tuesday.
She went on: “We’re trying to make meaningful steps to close that gap.”
Yellen’s remarks underscore the Biden administration’s efforts to collect tax revenue from the wealthiest Americans and multinational companies to finance $4 trillion in spending programs to overhaul the economy. President Joe Biden is also increasingly starting to say he does not want his plans to swell the federal deficit.
At the center of Biden’s planned revenue-raisers is a provision to increase IRS enforcement funding. He also wants to slap investors earning above $1 million with a new capital gains tax hike and raise the top marginal income tax rate to 39.6% from 37%.
A recent study from IRS researchers and academics found that the top 1% of Americans fail to report about a quarter of their income to the IRS. Income underreporting is nearly twice as high for the top 0.1%, which could account for billions in uncollected taxes.
The gap between taxes owed and taxes paid could only grow if left without intervention, according to the Treasury Department. Treasury estimates that Biden’s proposed $80 billion investment in the IRS could bring in an additional $700 billion over 10 years.
That’s still with hundreds of billions in taxes going uncollected each year, as Insider’s Ayelet Sheffey reports.
Biden’s funding would ramp up enforcement on the wealthiest. On the whole, the number of agents devoted to working on sophisticated tax evasion enforcement dropped by 35% over the last decade, according to Treasury. The IRS’s budget has fallen by 20%, while audits fell by 42% from 2010 to 2017. According to a White House fact sheet, there’s been an 80% decline in the audit rate for those making over $1 million a year from 2011 to 2018.
Earlier on Tuesday, Yellen suggested the
may need to make “modest” increases to interest rates to prevent the economy from overheating should Biden’s plans be enacted. That would step up the cost of federal borrowing and lead to a slower rate of economic growth, a move usually taken to curb inflation.
The decision to raise rates is under the Fed’s jurisdiction and not Treasury. Yellen later clarified her remarks and insisted she was not concerned about inflation.
“It’s not something I’m predicting or recommending,” the treasury secretary said in an interview at The Wall Street Journal CEO Council. “If anybody appreciates the independence of the Fed, I think that person is me.”