Over the past few weeks, political reporters have been publishing variations on the same story: A fractious Democratic coalition, unable to come to terms on the particulars of President Joe Biden’s legislative agenda, has steadily hollowed out the Build Back Better Act and lessened the impact of what might have been a transformative congressional session. Beyond the sacrifices made to important initiatives, the endless cuts have snuffed whatever misplaced comparisons between Joe Biden and Franklin Delano Roosevelt may have once existed. As the battered Biden agenda slouches toward the finish line, it’s much less ambitious than originally envisioned, with everything from free community college to a clean electricity program left on the chopping block.
However, if you sift through all the stories about the backbiting and wilting enthusiasm, the spending package still carries the seeds of a transformative agenda—especially as it pertains to targeting the wealthiest Americans, who currently bleed national coffers dry and burrow their wealth offshore. As part of the proposed spending package, the White House has held fast to an unprecedented spending boost to an agency that’s effectively on life support: the Internal Revenue Service.
As the White House noted in its proposed spending rollout last week, “Regular workers pay the taxes they owe on their wages and salaries—with a 99 percent compliance rate—while too many wealthy taxpayers hide their income from the IRS so they don’t have to pay.” Instead of a balanced approach to tax collection, the White House continued, the “result of a gutted IRS is a two-tiered tax system, where wage earners pay all the taxes they owe, but the top 1 percent evades over $160 billion per year in taxes.”
The administration’s proposed remedy: an $80 billion infusion into the IRS, dedicated to hiring new agents specifically to target wealth tax cheats, expand the IRS’s technical capacities, and invest in improved taxpayer services. The funding boost would allow the IRS to target the upper echelons of wealthy Americans, with additional enforcement resources “focused on pursuing those with the highest incomes; not Americans with income less than $400,000.” The proposed fixes would result in a gargantuan $400 billion haul, the “single biggest source of new revenue,” per The Washington Post.
Even if the proposed reforms don’t result in such a massive intake, the new funding would be a lifeline for an agency that has appeared, at times, to be destined for extinction—and which remains one of the last, best hopes to untangle the network of wealthy Americans bent on slipping their finances beyond democratic control and out into the offshoring ether.
Amid all of the tales of wealth inequality, growing federal deficit, and the spiraling offshore world over the past decade, one of the most overlooked phenomena is the effective collapse of the IRS. The agency once played a vital role in shoring up the government’s fiscal health by targeting high-income tax dodgers bent on skirting existing law with rigorous enforcement. Sadly, in recent years, the IRS has become a shadow of its former self.
Look at any of the data points you’d like, and you’ll find the same trends. In just the past decade, the overall budget of the IRS has fallen by some 20 percent. (These cuts are especially ironic given that the IRS is one of the few federal agencies that more than pays for itself.) Thanks to these cuts, the ratio of enforcement funding to returns filed has fallen by some 50 percent over the past quarter-century. As The New York Times noted earlier , “The share of all tax returns subject to an audit declined by 46 percent from 2010 to 2018, according to the Congressional Budget Office. For millionaires, the decline in the audit rate was 61 percent.”
Meanwhile, criminal referrals have collapsed alongside, dropping nearly 40 percent from just 2012 to 2016, with no end in sight. New investigations of those failing to file returns have declined, as well by nearly 90 percent over the past decade. (A handy drop-off for evaders, given that tax obligations disappear after a decade if the IRS doesn’t bother to pursue them.) As ProPublica found, 2019 “brought the lowest audit rate in generations.”
In perhaps the most startling metric, the United States now has fewer auditors than at any point since the Second World War. As economists Emmanuel Saez and Gabriel Zucman wrote, “When it comes to regulating the tax-dodging industry, the IRS brings a knife to a gunfight.”
This has come at a tremendous cost to ordinary Americans. In addition to the estimated $160 billion in annual tax evasion from the wealthiest Americans, estimates for unpaid federal income taxes this year stretch as high as $600 billion—and are projected at over $7.5 trillion in the coming decade. One 2021 study found that the wealthiest Americans fail to report up to 20 percent of their total income. While this tax evasion has skyrocketed, we’ve seen the concomitant rise in what author Chuck Collins describes as the “Wealth Defense Industry”: the standing army of lawyers, accountants, and other providers dedicated to manning the ramparts against any audits, any inquiries, or any efforts at upholding a democratic taxation system. Little surprise, then, that American assets offshored now stretch into the trillions.
There’s one clear reason for such a staggering implosion: massive budget cuts. The IRS didn’t fade of its own volition, atrophying resources because of ineptitude or inaction. Rather, it was slowly strangled by congressional Republicans, who’ve dedicated their energies over the past 25 years to bleeding the IRS of both resources and support across the country. With the rise of Gingrich-style obstructionism in the mid-1990s, congressional Republicans have spent decades demonizing the IRS, draining its funding, and spreading calls to abolish the agency outright. (See: Ted Cruz’s 2016 presidential campaign.) One glimpse at the IRS’s budget allocations shows a steady march to oblivion—and the slow suffocation of the only agency tasked with making sure wealthy Americans are actually bound, by some semblance of law, to the common good.
The decline of the IRS is of a piece with America’s broader transformation over the past few decades into a font of financial crime, a centerpiece of the broader offshoring world, and the premier jurisdiction offering kleptocratic services to any and all who need it. It’s no coincidence that all of these shifts happened simultaneously. And the increased funding is hardly a panacea; while a muscular IRS can finally begin tossing its weight around, white-collar criminals—those who claim to be interested only in “tax minimization”—have entire industries, and scores more loopholes, to exploit. “Given the depth and duration of the problem, a Manhattan Project–type group of the best minds convened to critically evaluate elite financial crime seems in order,” Paul Pelletier wrote in The Atlantic.
Still, the Biden administration’s willingness to hang on to boosted IRS funding, even while congressional Republicans continue to target the IRS, is, at the very least, an indicator that it recognizes how vital the agency remains where the civic interests of the American taxpayers who play by the rules are concerned. Whether the increased IRS funding takes in $400 billion or the potentially more than $1 trillion that other calculations have estimated, the fact that the administration recognizes the central role of the IRS in stemming the country’s financial misbalance is a welcome signal. Biden may not be FDR—but the fact that he seems fervently to want the IRS to return to the standing it enjoyed under the latter is a sign that reasons for optimism haven’t fully dimmed.