The New York Times editorial board on Sunday laid out a plan for how the U.S. could recover $1.4 trillion in taxes that would otherwise go uncollected.
The Times op-ed notes that the W-2 reporting system has largely prevented American workers from lying to the federal government about their income, while there’s been no comparable system for verifying income from businesses.
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The piece cites a 2019 Internal Revenue Service (IRS) analysis that estimates less than half of all income that is not subject to third-party verification, like a W-2, gets reported to the agency. Meanwhile, more than 95 percent of wage income is reported. Unpaid federal income taxes could amount to more than $600 billion this year and more than $7.5 trillion over the next 10 years.
“The result is that most wage earners pay their fair share while many business owners engage in blatant fraud at public expense,” the op-ed said.
To address this, the editorial board put forth a proposal from Charles Rossotti, who led the IRS from 1997 to 2002, that would increase the amount of taxes paid by those who are currently cheating the system.
Rossotti argues Congress should create a third-party verification system for business income, where banks would be required by the federal government to provide “an annual account statement totaling inflows and outflows, like the 1099 tax forms that investment firms must provide to their clients.”
“Individuals would then have the opportunity to reconcile what Mr Rossotti dubs their ‘1099New’ forms with their reported income on their individual tax returns. One might, for example, assert that a particular deposit was a tax-exempt gift,” the piece states.
The piece cites an analysis done by Rossotti, Harvard economist Lawrence Summers and University of Pennsylvania law professor Natasha Sarin published in November that argues investing $100 billion in the IRS to shore up technology, personnel and other resources over the next 10 years, coupled with increased transparency on business income, would result in the collection of $1.4 trillion in taxes that would have otherwise gone uncollected.
“There are many proposals to raise taxes on the rich. Let’s start by collecting what they already owe,” the editorial board said.
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