Economists find that the IRS would have a better ROI if it audited more rich Americans and fewer poor ones
Economists find that the IRS would have a better ROI if it audited more rich Americans and fewer poor ones
America's highest earners are pretty adept at not paying the taxes they owe. Scrutinizing them could yield a lot more revenue for the public.
The IRS could recover $12 for every $1 spent on scrutinizing the ultra-wealthy's taxes
It turns out that scrutinizing the rich's taxes pays off.
A new paper from economists at the Department of Treasury, Harvard University, and the University of Sydney looks at the return on investment from IRS audits from 2010 through 2014. They find that while it's much more expensive to audit the wealthiest tax payers, it's still a hearty return on investment. Auditing the top 1% yields $4.25 per dollar spent, and that number soars to $6.29 when auditing the top 0.1%.
And pouring even just a bit more money into auditing the rich could yield a lot more revenue, with every additional dollar yielding up to potentially $12 in revenue from the top 90th percentile of earners.
The findings illustrate how much money might be sitting untapped in what the IRS calls the tax gap — the chasm between taxes owed and taxes paid. America's highest earners are especially adept at not paying their taxes; a 2021 study from the IRS and economists found that the top 1% of earners don't report nearly a quarter of their income. And the top 0.1% under-report twice as much. The Treasury Department has previously estimated that the top 1% evade $163 billion in taxes annually.
That avoidance "has huge consequences. because it just means that low and moderate income families have to pick up a bigger share of our overall cost of government," Amy Hanauer, executive director of the Institute on Taxation and Economic Policy, told Insider.
"It also means that the public services that we all depend on are underfunded," Hanauer said. "So we have less revenue to pay for healthcare and education and higher education and infrastructure and all of the things that our tax dollars support that enable us to have strong communities."