Democrats have put forward bills to increase taxes on the wealthy, emphasizing increased IRS enforcement against wealthy tax evaders, ahead of a crucial election year that will determine the content of major tax legislation expected in 2025.
Senate Democratic committee leaders are touting IRS funding secured in last year's Tax Cuts and Jobs and Climate Change Act and using the hearings to show taxpayers how the money will be used for enforcement and improve taxpayer services. Progressive lawmakers are also introducing bills they say would complement IRS efforts to crack down on the wealthy for dodging their tax obligations, despite Republican messaging that raising taxes on the wealthy stifles economic growth.
Democrats have spent the last 12 years campaigning about caring for the middle class, promoting policies that put Americans first, and going after corporations and the wealthy who don't pay their taxes. They're preparing to make that case again ahead of next year's presidential election, because the winning party will have a big say in what shape tax code will take when much of the 2017 Republican tax law expires at the end of 2025.
“We have a choice to make over the next few years: either we give more tax cuts to the wealthy and the largest corporations, or we invest in American families,” the senator said.
“For a long time, we've had enforcement policies that were designed to protect the wealthy and to focus on the middle class,” Sen. Whitehouse (D-Iowa) said in an interview.
Photographer: Eric Li/Bloomberg
Their argument
Democrats scored a major victory for their cause with last year's anti-inflation bill, securing an extra $80 billion to modernize a struggling IRS hollowed out by decades of underfunding, but the Republican-controlled House and the Biden administration agreed to cut that amount by about a quarter over the next two years.
The IRS is using IRA funds to begin an overhaul of its taxpayer services to go after wealthy taxpayers who owe too much but don't actually pay it. The agency announced a series of resource-intensive fact-gathering efforts to target the ultra-wealthy, and touted big strides in phone service and other improvements to make it easier to file taxes.
Senate Democrats have stepped in to brief voters on the current situation and the need for reform. For example, the Finance and Budget Committees both recently held hearings on illegal and legal ways wealthy Americans avoid taxes.
“There's a lot of material that needs to be considered over time,” Chuck Marr, vice president for federal tax policy at the Center on Budget and Policy Priorities, said in an interview. “It's really important for the public to see the debate and know both sides.”
Now that the IRS has more resources to make sure the wealthy pay their taxes, Democrats also want to change the law to allow the wealthy to pay less tax.
Led by the Finance Committee
Wyden may also introduce legislation to impose an annual tax on the appreciation of publicly traded assets such as stocks and bonds, a proposal that would apply only to about 700 ultra-wealthy Americans who put the money in their IRAs was considered but ultimately rejected.
Budget Committee Chairman
“For a long time, we've had enforcement policies that were designed to protect the wealthy and focus on the middle class,” Whitehouse said in an interview. Democrats are now focused on tax reform, but it's unlikely to go into effect next year because few laws are enacted without a lengthy campaign to rally support, Whitehouse said.
“You have to go through the process of filing a lawsuit, announcing it, making it public, having hearings, getting it out into the public and defending it,” he said. “That's what we're going to do.”
Some of the most popular provisions of the 2017 tax law expire after 2025, so there will likely be pressure from both parties to extend at least some of the law, said Kimberly Clausing, a law professor at the University of California, Los Angeles and co-author of the 2025 Blueprint for Tax Increases of $3.5 trillion over 10 years. Extending the provisions would mean having to find a way to cover the costs, creating a need for new and creative ways to raise revenue.
“If we start having these conversations in 2023 and 2024, at least people can come to a common understanding of what the policy would do and how it would work,” Mr. Clausing, the former senior Treasury official, said in an interview. “Then, once we have the opportunity to legislate in 2025, bipartisan or otherwise, we'll be better prepared for what the ideal policy package would look like.”
Republicans push back
Republicans, meanwhile, argue that continuing to squeeze wealthy taxpayers could stifle growth, given that the highest-income Americans already pay a disproportionate amount in taxes. According to the IRS, the top 1% of earners paid 42.3% of the $1.7 trillion in federal income taxes it collected in 2020.
“They think that if you tax the top 1 percent, that's going to solve all our problems,” Sen. Charles Grassley (R-Iowa), the Budget Committee's ranking member, said in an interview. “It's not.”
Grassley said the IRS should focus on taxpayer services to make it easier for taxpayers to pay their taxes rather than cracking down on enforcement, and he pointed to improvements to an existing whistleblower program that allows taxpayers to report tax evasion and receive a percentage of the money collected from non-compliant taxpayers as a reward.
Grassley is co-sponsoring legislation that seeks to improve the program, which has raised $6.6 billion and paid out $1.1 billion in rewards since 2007. Currently, it can take more than a decade to compensate whistleblowers.
“If they do a better job of administering that law, they'll have access to more than the $6 billion that's already been raised,” Grassley said.
