Democrats Call for IRS Crackdown on the Rich

Plus, a tax windfall for the U.S. Treasury  [The Fisc](   By Yuval Rosenberg and Michael Rainey Democrats, Liberal Groups Push to Boost IRS Audits of the Rich, Corporations Democratic Reps. Ro Khanna of California and Peter DeFazio of Oregon each introduced bills on Thursday aimed at [boosting tax enforcement]( on the wealthy and [shrinking the “tax gap,”]( the amount of taxes owed that goes uncollected each year. In conjunction with the unveiling of the legislation, nearly 90 labor groups, left-leaning think tanks and other organizations published an open [letter]( Thursday calling on the Biden administration and Congress to beef up the Internal Revenue Service’s enforcement capabilities with the aim of reducing tax avoidance by the wealthy and corporations. The letter from 88 groups was organized by the Center for American Progress, Public Citizen and Americans for Tax Fairness. It was signed by the AFL-CIO and other unions and by think tanks including the Economic Policy Institute and the Institute on Taxation and Economic Policy. The groups behind the letter point to a recent [analysis]( that found that the 2019 gap, was $574 billion. “Yet the IRS’s enforcement budget has been reduced by about a third (in real dollars) over the last decade,” the letter says, “with enforcement weakened most dramatically for high-income taxpayers and large corporations—to the point where low-income workers claiming the Earned Income Tax Credit are audited at about the same rates as the top one percent.” The letter argues that the IRS needs "substantial increases in funding for enforcement and technology” provided over a number of years so that the agency can appropriately staff up, including hiring auditors who can handle complex tax returns of wealthy individuals, passthroughs and corporations. It points to various estimates, including from the Congressional Budget Office and the Treasury Department, that have indicated that the additional IRS enforcement funding would more than pay for itself. The groups also say that the IRS must address racial imbalances in its audit practices, noting [recent]( [reports]( that showed that audits are most heavily concentrated in many low-income counties in the Deep South, where tax filers, disproportionately people of color, claim the Earned Income Tax Credit. “Correcting these imbalances would be an important part of the effort to address systemic racial bias in our tax system and economy,” the groups say in their letter. Both DeFazio’s bill, the IRS Enhancement and Tax Gap Reduction Act, and Khanna’s bill, with a catchier title — the Stop Corporations and Higher Earners from Avoiding Taxes and Enforce Rules Strictly (or Stop CHEATERS) Act — would mandate minimum audit levels for high-earning individuals and corporations and boost IRS funding, with some differences in the details. Khanna, for example, would provide an additional $100 billion in IRS funding over 10 years, including $70 billion for enforcement, $20 billion for taxpayer services and $10 billion for technology upgrades and operations support. Khanna says his bill would raise an estimated $1.2 trillion in revenue over 10 years. Treasury Gets a Tax Windfall as Stocks Soar The booming stock market is producing a surge in capital gains, and the U.S. Treasury now expects to collect more in capital gains taxes this year than it has in a decade as investors take their winnings off the table. The Congressional Budget Office has increased its estimate of expected asset sales, which it refers to as “realizations,” by 45% this year, bringing the total to more than $1 trillion. The increase in realizations is more than 10 times larger than the expected increase in wages and salaries, Politico’s Brian Faler [reported]( Thursday. The haul will mean that capital gains tax receipts become the third-largest source of government revenue, surpassing corporate income taxes. “It’s a rare bright spot in the government’s otherwise dismal budget outlook — one that hearkens to the days of the dot-com bubble of the 1990s,” Faler wrote. “Back then, swelling capital gains went a long way towards erasing the government’s deficit.” The stock market surge is helping state government budgets, too. Tax revenues are 39% higher than expected in Connecticut, for example, pushing receipts back near pre-Covid levels. The bottom line: In the early days of the pandemic, the CBO cut its estimates for capital gains realizations in 2021 to $823 billion, a reduction of 18%. But the ever-climbing stock market has spurred CBO to revise that estimate upward to $1.2 trillion. As a result, capital gains taxes are now estimated to come to $197 billion in 2021, up from $164 billion in 2020. Measured as a percentage of the economy, capital gains realizations will equal 5.4% of GDP, Faler said, a level not seen since before the Great Recession. Quote of the Day “Before President Biden and congressional Democrats try to pass trillions more in spending, the American people need, at the very least, a thorough and accurate accounting of the trillions of dollars already approved.” – Rep. Jason Smith (R-MO), the top Republican on the House Budget Committee, as quoted in an article at [The Hill]( about the GOP’s highlighting unspent funds from previous relief packages in their criticisms of Biden’s current proposal. Smith says that an estimated $1 trillion in approved funding has yet to be spent. U.S. Life Expectancy Fell by a Full Year Due to Covid Life expectancy in the U.S. fell by a full year in the first six months of 2020 due to the coronavirus pandemic, the Centers for Disease Control and Prevention [announced]( Thursday. In the largest decline since World War II, average life expectancy fell to 77.8 years for the U.S. population, down from 78.8 years in 2019. There were significant racial differences, with life expectancy for Black Americans falling by 2.7 years to 72.0, eliminating two decades’ worth of gains. Unlike the declines in life expectancy associated with opioid use and so-called “deaths of despair” seen in recent years, the Covid-related drop is expected to be short-lived. According to [The New York Times]( Thursday, life expectancy in the U.S. fell by more than 11 years during the 1918 pandemic but rebounded the following year as the outbreak came to an end. Best Way to Control Hospital Costs? Regulate Prices, New Study Says Hospitals account for the largest single category of health care spending in the U.S., and policymakers have long debated the best way to bring their costs under control. According to a [new report]( from the RAND Corporation, the best option may be the most obvious one: using government-imposed price regulations. The RAND analysis examined three widely discussed options for controlling hospital costs: increased competition, increased price transparency and direct price regulation. The last option — which was operationalized by applying Medicare prices to all commercial payers — was by far the most effective, reducing spending by nearly $62 billion. Less aggressive price limits would produce smaller reductions, but price regulations remained the most effective approach. Increased price transparency led to a reduction in spending of about $8.7 billion in the analysis, while increased competition in the form of reduced market concentration produced about $6.2 billion in savings. The bottom line: RAND says that federal price limits on hospitals would produce the largest reductions in spending, but it also acknowledges — and underplays — the obvious hurdles to such an approach, noting that it “would likely face political challenges.” Send your feedback to yrosenberg@thefiscaltimes.com. And please tell your friends they can [sign up here]( for their own copy of this newsletter. 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