The next Republican attack on Biden will boomerang on the GOP
Washington Post
The IRS building in Washington, D.C. (Bill O'Leary/WASHINGTON POST)
In 2010, private equity magnate Steven Schwartzman attracted great derision when he greeted an Obama administration proposal to raise taxes on his kind of profits with a World War II analogy: “It’s like when Hitler invaded Poland in 1939.”
Schwartzman managed to survive the blitzkrieg. Today his fortune stands at a healthy $27 billion.
But now that President Biden is set to introduce a new proposal that would beef up IRS enforcement, making it harder for such wealthy investors to cheat and shield their incomes, the Nazi comparisons may start up again. The ultrarich are already reportedly in a panic about other Biden plans to raise their taxes, and more IRS enforcement will only make things worse.
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This, combined with the particulars of Biden’s new proposal, will make it hard for Republicans to register their inevitable opposition without it boomeranging back on them.
The Post reports that when Biden announces the next phase of his jobs plan on Wednesday, it will include a proposal to add $80 billion in funding for the IRS that will make plutocrats choke on their wagyu tartare:
Probably the single biggest source of new revenue in the plan comes from dramatically expanding the clout of the nation’s tax agency. It seeks to beef up the number of agents and give the IRS new tools and technology to execute collections and crack down on avoidance, the people said.
White House officials have eyed raising as much as $700 billion from toughening IRS enforcement and auditing over 10 years, two of the people said, although the precise amount in the plan remained unclear. Enforcement will be focused on the wealthy, the people said.
Enforcing tax collection tends to get less attention than other Biden tax proposals do. We’ve been debating whether to raise taxes on corporations, capital gains, and top level incomes, and crack down on tax avoidance by multinational companies.
But the sorry state of tax enforcement may also make a huge difference to the tax bills of the ultrawealthy, and therefore to the rest of us.
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The Internal Revenue Service lacks the resources to enforce tax laws. The tax gap — between what is owed and what is paid — amounts to an estimated hundreds of billions of dollars a year. IRS Commissioner Charles Rettig even suggested recently that this might “exceed $1 trillion per year.”
Two things in Biden’s proposal will make the political debate over it interesting. First, it will seek additional revenue reporting requirements. Though details remain vague, it appears these will be applied to people who hide money in “opaque structures,” as Jim Tankersly dryly notes.
Sen. Ron Wyden (D-Ore.), the chair of the Finance Committee, points out that this will help ensure that the targets are very wealthy investors. Wage earners are already less likely to misreport income, Wyden notes, which means such requirements will target unreported revenue from holders of capital that employ creative bookkeeping to hide them.
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“The reason people who earn wages generally don’t cheat on their taxes is because their employers also report their income to the government,” Wyden told us in a statement. “That’s not the case for the highfliers, whose income from wealth often goes unreported. Plugging this hole in the system is critical.”
Second, the Biden proposal will also seek dedicated funding from Congress, meaning it would be insulated from future budget cuts.
Wyden pointed out that this is essential, because Republicans might seek to undo that funding if they take back the House next year, and wealthy tax avoiders could continue scheming in anticipation of that.
“Wealthy tax cheats are savvy enough to understand that a one-year budget increase isn’t going to rebuild the agency after a decade of neglect,” Wyden said.
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History confirms that this might happen. After the GOP House takeover in 2010, Republicans successfully won deep cuts to IRS enforcement, even though Barack Obama was in the White House.
“We all saw what happened when Republicans took back the House and went to war against the agency,” Wyden told us. “They were able to slash IRS funding and hobble enforcement efforts.”
That had an impact. As the Center on Budget and Policy Priorities notes, the audit rate for those with incomes over $1 million a year “fell by 71 percent between 2010 and 2019, from 8.4 percent to just 2.4 percent.”
All this should also make it harder for Republicans to oppose the plan. They will try to rehash old attacks by arguing that the jackbooted IRS will be coming for ordinary Americans. But the proposals are geared toward rich investors, so that will be a harder case to make without Republicans appearing to protect their interests.
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Second, Republicans may have a tougher time arguing that this IRS funding shouldn’t be protected, given recent history and their own role in authoring that history.
By now, this history has established for the public that with a decimated IRS, it’s harder to audit wealthy individuals, since they can employ high-priced accountants and lawyers. We’ve heard horror stories long these lines for years.
At a time when we’re mired in crises not seen in many decades, it will be harder to defend anything that might make it easier for the very rich to skate when so many ordinary Americans are enduring such hardship.
Back in 2019, Biden told a group of wealthy donors that he didn’t want to “demonize” them, but something had to be done about inequality. Under his proposals, he said, “no one’s standard of living will change.”
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For better or worse, even if Biden gets everything he wants on taxes, that will still be basically true. If someone who makes $50 million a year from investments has to pay a few million more in taxes, their lives will be pretty much the same. There are only so many yachts one person can own.
But, given the large public investments this could help fund at a time of such deep public need, the country could be much better off. Let’s see Republicans argue against that.
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