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The wealthy's 'egregious' tax evasion costs the U.S. a bundle

The wealthy's tax evasion costs us $163 billion a year, but congressional Republicans still won't help the IRS enforce existing tax laws.

There were multiple reports in the spring documenting the fact that dozens of the nation's largest corporations didn't pay any federal income taxes on more than $40 billion in profits last year. As we discussed at the time, many of these private sector giants actually received federal rebates, creating negative tax rates, thanks in part to the country's regressive tax policies.

But as discouraging as it was to learn that many middle-class American families paid more in federal income taxes than companies such as FedEx and Nike, the revelations didn't point to any legal wrongdoing. Corporate giants simply took advantage of the existing system.

It's a different story when some of the wealthiest Americans fail to pay what they owe. The New York Times reported yesterday:

The wealthiest 1 percent of Americans are the nation's most egregious tax evaders, failing to pay as much as $163 billion in owed taxes per year, according to a Treasury Department report released on Wednesday. ... Tax compliance rates are high for low- and middle-income workers who have their taxes deducted automatically from their paychecks. The rich, however, are able to use accounting loopholes to shield their tax liabilities.

To put the figure in context, President Joe Biden's Build Back Better proposal, currently pending on Capitol Hill, calls for roughly $350 billion in new investments, per year, over the course of the next decade. According to the Treasury Department's findings, if the wealthiest of the wealthy paid their tax bills, it would cover nearly half of the cost of the legislation.

Common sense seems to point to an obvious solution: Congress could bolster the Internal Revenue Service, strengthen enforcement of existing tax laws, ensure rich Americans pay their tax bills, and use the revenue to benefit the public.

That, however, is a scenario congressional Republicans have rejected out of hand.

Circling back to our earlier coverage, it's no secret that the IRS has been gradually undermined for years, which in turn has made it far more difficult for the agency to be aggressive in pursuing tax cheats, which in turn has meant less revenue for policy priorities. Investing more in the service would make it possible to generate revenue without raising tax rates on anyone.

As The Washington Post's Catherine Rampell explained in a recent column, "How do you raise tax revenue without raising taxes? By increasing enforcement of existing tax law and making sure every penny already owed gets paid."

Nevertheless, the more the White House pushed the idea of strengthening the IRS to help pay for infrastructure, the more GOP lawmakers refused.

With this in mind, as the Treasury Department points to a brutal new figure — the wealthy's tax evasion costs us $163 billion a year — the difference in the reactions between the parties is extraordinary. For Democrats, the solution is to enforce the tax laws already on the books.

For Republicans, the solution is to do nothing and allow the problem to continue. The GOP, in effect, still supports underfunding the tax police.