Treasury Finds Wealthiest 1 Percent Dodge Over $160 Billion in Taxes Yearly

The wealthiest 1 percent of people in the U.S. avoid paying a huge amount of the taxes they would normally owe every year, according to a new report from the Treasury Department.

The report found that the top 1 percent avoid paying over $160 billion in taxes every year, or about 28 percent of all taxes dodged yearly. The Treasury, citing a study of data from 2019 that calculates $163 billion in lost tax revenue, said “Ongoing work by IRS researchers and outside academics suggest[s] the concentration of the tax gap is even more skewed toward the top of the income distribution.”

While the agency notes that it’s difficult to estimate the tax loss from the highest tax brackets, the data shows that the bulk of the $163 billion figure stems from the wealthiest 0.5 percent of Americans who, according to the Treasury Department, dodge $120 billion in taxes annually.

Overall, the amount of taxes that don’t get paid every year by all taxpayers is equal to the entirety of the amount in income taxes paid by the bottom 90 percent of earners, the agency found. More importantly, the top 10 percent of earners are responsible for nearly 53 percent of the gap in taxes owed but not paid yearly.

“A well-functioning tax system requires that everyone pays the taxes they owe,” wrote Natasha Sarin, the Treasury Department’s Deputy Assistant Secretary for Economic Policy. “The tax gap can be a major source of inequity. Today’s tax code contains two sets of rules: one for regular wage and salary workers who report virtually all the income they earn; and another for wealthy taxpayers, who are often able to avoid a large share of the taxes they owe.”

The report comes as Democrats and the White House have mounted a push to increase tax compliance with extra funding for the Internal Revenue Service (IRS). Treasury Secretary Janet Yellen has previously said that the U.S. has missed out on over $7 trillion in uncollected taxes over a decade.

If the U.S. were able to capture the $163 billion in unpaid taxes from the top 1 percent every year for the next 10 years, even without hiking taxes for the wealthy, it could pay for nearly half of the Democrats’ $3.5 trillion reconciliation bill.

The Biden administration has spent the last months emphasizing ways to close the “tax gap,” or the proportion of income taxes paid by lower- and middle-income earners versus that paid by the wealthy and corporations. In the spring, Joe Biden unveiled a plan to essentially double the IRS’s enforcement arm in order to capture income taxes skipped by corporations and the wealthy. The plan, according to the May announcement, would give the agency $80 billion in funding over a decade and raise at least $780 billion over the next decade.

“The United States collects less tax revenue as a percentage of GDP than at most points in recent history, in part because owed but uncollected taxes are so significant,” wrote Sarin. “These unpaid taxes mean policymakers must choose between rising deficits, lower spending on important priorities, or further tax increase to compensate for lost revenue—which will only be borne by compliant taxpayers.”

Sarin also pointed out that the IRS simply lacks the resources to chase after all of the lost taxes. And, without the ability to sniff out the complicated tax-cheating methods used by the wealthy, the IRS’s audit rates for the wealthy have seriously declined over the years, whereas the audit rate for low-income recipients of the Earned Income Tax Credit has not been greatly affected.

Sen. Elizabeth Warren (D-Massachusetts) has also previously suggested an IRS crackdown on wealthy tax cheats — one that goes further than the Biden plan. Her plan would give the agency $31.5 billion yearly, more than twice its budget for 2021. This plan could raise $1.75 trillion over the next decade, Warren has said.