The president’s proposal calls for significant investment in the I.R.S., with $80 billion over a decade in primarily mandatory funding to provide multiyear resources to support necessary work force, service and information technology advancements. In particular, the agency’s siloed and antiquated I.T. is a major source of risk, causing server crashes and leaving the I.R.S. susceptible to cyberattacks. It is imperative that the information technology undergirding our tax system keep pace with the information technology driving our economy.
The proposal also calls for increasing the information the I.R.S. has at its disposal. When income can be verified by third-party reports — like wages, salaries, pension and unemployment income — misreporting rates are under 5 percent. But misreporting exceeds 50 percent for certain types of business income, like rental and proprietorship income. The current tax system thus benefits certain high earners who accrue most of their income from sources where misreporting is common.
We are convinced that better information-reporting requirements can be designed that will permit significant increases in revenue collection without imposing any burden at all on taxpayers and imposing no significant increase in regulatory burdens across the economy. Relying on financial institutions to relay some basic information about account holders is a sensible way forward. With better information for the I.R.S., voluntary compliance will rise through deterrence as potential tax evaders realize there is a risk to evasion.
The Treasury’s Office of Tax Analysis estimates that these initiatives will generate $700 billion over the 10-year budget window. But this proposal, if anything, is modest. Former I.R.S. Commissioner Charles Rossotti, who served under Presidents Bill Clinton and George W. Bush, and Fred Forman, an experienced technology executive and former I.R.S. associate commissioner for modernization, estimate $1.6 trillion could be collected within a decade from efforts to close the gap between taxes owed and collected. This is because they include, for example, modernizing outdated technological systems and improving taxpayer experiences with the I.R.S. — elements of the administration’s proposal whose revenue impact is not accounted for.
Rightly, the Biden approach recognizes that compliance can be improved by making it easier for taxpayers to avoid honest errors, by the I.R.S.’s being able to pick up the phone when taxpayers call with questions and by increasing oversight of tax preparers to ensure their competency.
We know firsthand the challenge dedicated I.R.S. employees face each day as they work to administer tax laws while hamstrung by inadequate funding and support. Reasonable people can disagree on the magnitude of particular tax rate increases. But on this issue, all should agree, including members of Congress of both parties: Giving the I.R.S. the tools it needs to improve compliance will raise significant revenue and create a fairer, more efficient system of tax administration.