Want to narrow the yawning federal deficit? Be tougher on tax collection, says former Treasury Secretary Lawrence Summers, in a research paper.
The government could collect $535 billion more over the next 10 years if the Internal Revenue Service stepped up its audits. Summers, now a Harvard economics professor, suggests restoring it to the frequency last seen in 2011 and before. Back then, a period encompassing his tenure as Treasury secretary under Bill Clinton and as economic advisor to Barack Obama, collections were higher, Summers argued.
Audit rates were higher in the past and the focus was more on millionaires and billionaires, according to his academic paper, written with a University of Pennsylvania law professor, Natasha Sarin.
Reviewing the returns of the wealthy is time-consuming but delivers the goods, Summers and Sarin contended. “Under-reporting is more than five times as high for individuals who earn $10 million or more annual than it is for those who make under $200,000 a year,” the paper said. Uncollected taxes will cost federal coffers around $630 billion in 2020, their research found.
The IRS audit rate peaked at 1.1% for all individual returns and since has dropped to 0.5% in 2018, the agency’s stats show. Should the audit tempo return to 2011 levels, then there would be 131,000 extra audits, the Summers paper maintained., Treasury has proposed more funding for its taxpayer compliance efforts in the 2020 fiscal year.
No doubt, red ink is rising in Washington. The federal deficit for fiscal 2019, which ended September 30, was $984 billion, a 26% increase from 2018, the US Treasury reported.
Corporate tax revenues totaled $230 billion, up 12%, because of a bounce back in the second half of the year. Meanwhile, individual tax revenues rose 2% to $1.7 trillion. Receipts totaled $3.4 trillion, up 4% through September, but while federal outlays rose 8%, to $4.4 trillion.