Posted by Katie Lobosco, CNN

President Joe Biden seeks to raise money for its ambitious economic agenda by stepping up enforcement with the Internal Revenue Service – a way for the federal government to spend more money without raising taxes or increasing the deficit, making it a win in the eyes of lawmakers. Makes a win situation.

The latest infrastructure proposal Agreeing with the White House and a bipartisan group of Senators, the IRS is killing an additional $ 100 billion over the next 10 years simply by stepping up enforcement and making sure the government collects what taxpayers actually owe – aka to close the “tax gap”.

Biden also suggested earlier this year that if he could increase the IRS’s budget by $ 80 billion to pay for enforcement, he could increase government revenues by $ 700 billion over 10 years – money, that he used to finance his. would use American family plan, who would invest in childcare, pre-K, and colleges.

However, it is unclear exactly how much could be raised and how much it would cost to increase enforcement. This is how it could work:

How much tax is left unpaid?

The difference between the amount legally owed and the amount actually paid to the IRS – known as the “tax gap” – could be anywhere from $ 381 billion to $ 1 trillion annually.

The latest IRS report available says that nearly 84% of federal taxes are paid voluntarily and on time, causing $ 441 billion in default. After late payments and enforcement actions, the gap narrowed to $ 381 billion, the report said.

But that’s based on 2011, 2012, and 2013 tax years, and IRS Commissioner Chuck Rettig told lawmakers earlier this year that he believes the tax gap could be much bigger now – up to a massive $ 1 trillion a year.

One reason the earlier report underestimated the tax gap? The use of has increased virtual currencies since 2013, which comes with new compliance challenges. The earlier estimates may also have underestimated unreported offshore revenue and the use of transit companies.

The Biden administration put the number somewhere in the middle. One recently Treasury analysis noted that the tax gap was nearly $ 600 billion in 2019 and could rise to about $ 7 trillion over the next decade if left unchecked – roughly 15% of taxes owed.

How much can actually still be collected?

It is unlikely that the IRS will ever be able to bring the tax gap to zero, no matter how much they step up enforcement.

The agreement between a bipartisan group of senators and the White House suggests they believe another $ 100 billion could be raised over 10 years – and they plan to use that money to fund infrastructure investments.

“We think this is spot on,” said John Ricco, associate director of policy analysis at Penn Wharton Budget Model, the analyzed the bipartisan proposal.

A separate report from the Congressional Budget Office also suggests it can be done, though it depends on how much is being spent to bolster the IRS. It said the agency could raise an additional $ 61 billion over 10 years if it spends an additional $ 20 billion on investigations and collections, or an additional $ 103 billion if it spends $ 40 billion over 10 years would spend.

Who doesn’t pay?

The tax gap highlights how some people and businesses are failing to pay their fair share. But it’s not just the result of bad actors trying to evade the tax officer. Some of them are also accidental mistakes.

“Failure to comply with tax laws is often associated with unintentional errors that can be traced back to the fact that the now extremely complex tax law was not fully understood,” wrote Rettig in a current memo.

Most unpaid taxes result from people reporting less income than they earned, especially income from businesses and self-employment. About 9% of the loophole is due to failure to file and 11% to underpayment of taxes, which, according to the Committee for a responsible federal budget.

The Biden government has announced that it will address the rich with more assertiveness. A report from former Treasury Secretary Larry Summer and Natasha Sarin, assistant professor at the University of Pennsylvania, found that high-income individuals tend to under-report their income because more of it comes from opaque categories such as dividend income, capital gains, and property income.

Can the IRS catch up?

The agency is tight on cash and needs a bigger budget to hire more staff if it is to close the tax gap.

Their budget has shrunk by 20% over the past decade, resulting in a 22% reduction in staff. With fewer people working on enforcement, the percentage of individual income tax returns examined decreased by 46%, and the percentage of corporate tax returns examined fell 37% between 2010 and 2018, according to the Congressional Budget Office.

The agency was still burdened during the pandemic when many of its employees were sent to work from home while Congress increased its workload by hiring the IRS to distribute three rounds of stimulus payments and the new, expanded child tax credit.

The CNN Wire
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