Chairman Mike Thompson Opening Statement at Select Revenue Measures and Oversight Joint Subcommittee Hearing on “Minding the Tax Gap: Improving Tax Administration for the 21st Century”

Jun 10, 2021
Press Release

(As prepared for delivery)

Today’s hearing, which the Select Revenue Measures Subcommittee is holding jointly with Mr. Pascrell’s Oversight Subcommittee, focuses on the growing gap between taxes owed to the government and taxes actually paid -- what is commonly referred to as the “tax gap.”  

The tax gap is an important indicator for how well our tax system functions, and reducing it is a central part of the IRS’s mission to fairly administer and enforce our tax laws.  However, over the past decade, the IRS has been starved of resources to go after a significant contributor to the tax gap – wealthy taxpayers, who can use sophisticated methods to evade taxes and whose income is not subject to reporting requirements.  

Instead, facing budget cut after budget cut, the IRS has relied heavily on current information reporting to audit working Americans who have more straightforward returns.  Without the funds to train enforcement staff or update its technology, the agency has been valiantly fighting a losing battle against well-armed taxpayers who can create complicated partnership structures or send their assets overseas.

I hope this joint hearing is an opportunity to review our current system and the disparities it creates, and to examine the Administration’s proposals on how to provide the IRS with the resources it needs to properly enforce our tax laws and best serve taxpayers.   

Put simply, the IRS doesn’t have the tools it needs to effectively meet the challenges of the day.  

Its information technology system is the oldest in the federal government.  

It has fewer auditors than at any time since World War II and, as a result, the audit rates for taxpayers making over $1 million in income have fallen by almost 80%.  

The agency has lost many experienced revenue agents who handle time-consuming, complex audits.

Finally, IRS staff have had to do more with less while still striving to meet high levels of service, feeding into a cycle of decreasing morale and attrition.      

Fortunately, the Biden Administration understands that a fair and effective tax system requires that the IRS have adequate resources.  That is why it proposes sustained investments to improve enforcement efforts, including an appropriate number of skilled agents who can pursue wealthy taxpayers that evade taxes using complex schemes.   

The Administration also knows that an important component of shrinking the tax gap is comprehensive information reporting that can shine a light on the opaque income streams of these taxpayers, like proprietorship and partnership business income.  None of this can be done efficiently without overhauling and modernizing the IRS’s outdated information technology systems.   

Finally, increased resources and enforcement does not mean that we should stop asking how we can make our system better.  There must be a sustained focus on reducing disparities in the treatment of different taxpayers, and providing better taxpayer service so that Americans who do comply with the law can feel assured that the tax system is fair and efficient.  

It is not just our Subcommittees and the Biden Administration who think it is time to tackle this issue.  Yesterday, five former Treasury Secretaries, who served under both Democratic and Republican Administrations, agreed that we need to act.

In a jointly-authored op ed published in the New York Times titled “We Ran the Treasury Department.  This is How to Fix Tax Evasion, they write:

“We know firsthand the challenge dedicated I.R.S. employees face each day as they work to administer tax laws while hamstrung by inadequate funding and support. Reasonable people can disagree on the magnitude of particular tax rate increases. But on this issue, all should agree, including members of Congress of both parties: Giving the I.R.S. the tools it needs to improve compliance will raise significant revenue and create a fairer, more efficient system of tax administration.”

Without objection, this op ed is inserted into the record.

Americans will feel more confident paying their taxes if they know that everyone else is paying what they owe and that the tax laws are fairly enforced.  I look forward to hearing from our witnesses and working with the Administration and colleagues to improve IRS efficiency, ensure there is no additional burden on honest taxpayers, and make the tax system more equitable.  Thank you.

And with that I will recognize the Ranking Member, Mr. Smith of Nebraska, for the purposes of an opening statement.