WASHINGTON — President Biden, in an effort to pay for his ambitious economic agenda, is expected to propose giving the Internal Revenue Service an extra $80 billion and more authority over the next 10 years to help crack down on tax evasion by high-earners and large corporations, according to two people familiar with the plan.
The additional money and enforcement power will accompany new disclosure requirements for people who own businesses that are not organized as corporations and for other wealthy people who could be hiding income from the government.
The Biden administration will portray those efforts — coupled with new taxes it is proposing on corporations and the rich — as a way to level the tax playing field between typical American workers and very high-earners who employ sophisticated efforts to minimize or avoid taxation. The $80 billion in proposed funding would be an increase of two-thirds over the agency’s entire funding levels for the past decade.
The administration estimates that giving the I.R.S. an additional $80 billion over a decade could raise at least $780 billion in new tax revenue, for a net gain of at least $700 billion. Mr. Biden plans to use money raised by the effort to help pay for the cost of his “American Families Plan,” which he will detail before addressing a joint session of Congress on Wednesday. It will be the largest single revenue raiser for the plan.
That plan, which follows his $2.3 trillion infrastructure package, is expected to cost at least $1.5 trillion and will include universal prekindergarten, a federal paid leave program, efforts to make child care more affordable, free community college for all and tax credits meant to fight poverty.
The administration also aims to pay for the plan by raising the top marginal income tax rate for wealthy Americans to 39.6 percent from 37 percent and raising capital gains tax rates for those who earn more than $1 million a year, which would combine to raise hundreds of billions of dollars. Mr. Biden will also seek to raise the tax rate on income that people earning more than $1 million per year receive through stock dividends, according to a person familiar with the proposal.
The administration is expected to portray the $780 billion it expects to collect through enhanced enforcement as conservative. That figure includes only money directly raised by enhanced tax audits and additional reporting requirements, and not any additional revenue from people or companies choosing to pay more taxes after previously avoiding them.
Many economists and tax experts welcomed the proposal, which they said would help reverse years of declining enforcement actions against companies and the rich at the agency.
“The plan is good news for honest filers and businesses, the budget, and the rule of law,” said Chye-Ching Huang, executive director of the Tax Law Center at N.Y.U. Law. “Stopping tax cheats from having an unfair advantage helps honest businesses to compete and thrive.”
Previous administrations have long talked about trying to close the so-called tax gap — the amount of money that taxpayers owe but that is not collected each year. This month, the head of the I.R.S., Charles Rettig, told a Senate committee that the agency lacked the resources to catch tax cheats, costing the government as much as $1 trillion a year.
The erosion of resources at the I.R.S. was detailed in a Congressional Budget Office report last year that examined the agency’s work from 2010 to 2018. During that time frame, the I.R.S.’s annual budget declined by 20 percent and its staff declined by 22 percent. Funding for enforcement activities fell by nearly a third.
With less money and staff, the I.R.S. was forced to become more lax at enforcing tax laws. Examinations of individual tax returns fell by 46 percent and audits of corporate tax filings fell by 37 percent, according to the C.B.O.
Mr. Biden aims to change that. His economic team includes a University of Pennsylvania economist, Natasha Sarin, whose research with the Harvard University economist Lawrence H. Summers suggests that the United States could raise as much as $1.1 trillion over a decade via increased tax enforcement.
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Mr. Summers praised Mr. Biden’s expected plan in an email late Monday. “This is the broadly right approach,” he said. “Deterioration in I.R.S. enforcement effort and information gathering is scandalous. The Biden plan would make the American tax system fairer, more efficient and, I’m confident, raise more revenue than official scorekeepers now forecast — likely a trillion over 10 years.”
Mr. Biden’s efforts would incorporate some of Ms. Sarin and Mr. Summers’s suggestions, including investing heavily in information technology improvements to help the agency better target its audits of high-earners and companies.
They would also provide a dedicated funding stream to the agency, to enable officials to steadily ramp up their enforcement practices without fear of budget cuts, and to signal to potential tax evaders that the agency’s efforts will not be soon diminished. Mr. Biden would also add new requirements for people who own so-called pass-through corporations or hold their wealth in opaque structures, reminiscent of a program established under President Barack Obama that helps the agency better track possible tax evasion by Americans with overseas holdings.
Fred T. Goldberg Jr., an I.R.S. commissioner under President George H.W. Bush, called Mr. Biden’s plan “transformative” for combining those efforts.
“Information reporting, coupled with restoring enforcement efforts, is key to improve in compliance,” Mr. Goldberg said in an email. “Audits alone will never do the trick.”
He added: “None of this happens overnight. A decade of stable funding is necessary to recruit and train talent and build on the necessary technology — not only for compliance purposes but to meet the quality of services that the vast majority compliant taxpayers expect and deserve.”
Some conservative tax activists oppose any additional spending at the agency. Grover Norquist, the president of Americans for Tax Reform, said in an interview that additional enforcement dollars risk increasing the number of politically motivated audits while burdening small business owners, with no guarantee of a large increase in revenues.
“Nothing says these guys are going to raise money,” he said. “The I.R.S. has been highly politicized for a long time. They’ve done nothing to fix it.”
Tax experts tend to agree that boosting enforcement capacity of the I.R.S. will more than pay for itself, but it is not clear how much is really needed at a time when many of the agency’s functions can be automated and more tax returns are filed electronically.
The C.B.O. estimated last year that an additional $40 billion of funding over 10 years would increase government revenues by $103 billion. Administration officials are confident the actual amount is much higher.
John Koskinen, who served as I.R.S. commissioner under President Barack Obama and President Donald J. Trump, said that he thought the $80 billion being proposed by the Biden administration might be too much. The suggestion was surprising coming from someone who lamented loudly that the agency was being starved when he was in charge.
“I’m not sure you’d be able to efficiently use that much money,” Mr. Koskinen said in an interview. “That’s a lot of money.”
Mr. Koskinen said he thought an extra $25 billion over a decade would help bring the I.R.S. budget back to where it was around 2010, allowing it to hire enforcement agents who have been lost to attrition and revamp the agency’s customer service capabilities.