Treasury Secretary Janet Yellen says a 'shocking' $7 trillion in taxes is going uncollected
- Yellen told The Atlantic that the tax gap was a "shocking" $7 trillion over a decade.
- Her remarks reflect the
White House's resolve to collect taxesfrom high earners and big firms.
- The Treasury has said the tax gap could worsen if no additional action is taken.
"It's really shocking and distressing to see estimates suggesting that the gap between what we're collecting in taxes on current tax and what we should be collecting - if everybody were paying for taxes that are due - that amounts to over $7 trillion over a decade," Yellen said in an interview with The Atlantic published on Tuesday.She added: "We're trying to make meaningful steps to close that gap."
At the center of Biden's planned revenue raisers is a provision to increase funding for IRS enforcement. He also wants to slap investors earning above $1 million with a hike in the capital-gains tax and raise the top marginal income-tax rate to 39.6% from 37%.The IRS's official estimate is that there is a tax gap of $441 billion a year. But Charles Rettig, the agency's commissioner, recently told Congress that number could be over $1 trillion.
A recent study from IRS researchers and academics found that the top 1% of Americans failed to report about one-quarter of their income to the IRS. The research found income underreporting was nearly twice as high for the top 0.1%, which could account for billions in uncollected taxes.The gap between taxes owed and taxes paid could grow if there's no intervention, according to the
Biden's funding would ramp up enforcement on the wealthiest. On the whole, the number of agents devoted to working on sophisticated tax-evasion enforcement dropped by 35% over the past decade, according to the Treasury. The IRS's budget fell by 20% between 2010 and 2018, while audits decreased by 42% from 2010 to 2017. According to a White House fact sheet, there was an 80% decline from 2011 to 2018 in the audit rate for those making over $1 million a year.
Earlier on Tuesday, Yellen suggested the Federal Reserve may need to make "modest" increases to interest rates to prevent the economy from overheating if Biden's plans were enacted. That would step up the cost of federal borrowing and lead to a slower rate of economic growth, a move usually taken to curb inflation.The decision to raise rates is under the Fed's jurisdiction, not the Treasury's. Yellen later clarified her remarks and said she was not concerned about inflation.
"It's not something I'm predicting or recommending," the Treasury secretary said in an interview at The Wall Street Journal's CEO Council Summit. "If anybody appreciates the independence of the Fed, I think that person is me."
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