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Unfairness in Tax Compliance

June 18, 2021

The Biden Administration’s tax proposals deserve to be scrutinized. Much of the focus, rightfully so, has been on their efforts to raise individual, capital gains, and corporate tax rates. There is also concern over other changes the administration wishes to make to the tax code, such as repealing stepped-up basis when a farm or small business is inherited to force families to pay more taxes. However, it’s the administration’s proposal to spend $80 billion over the next decade expanding the IRS workforce to focus on audit passthrough businesses – impacting the same families targeted by their tax increases – that calls for scrutiny today.
The tax enforcement proposals coming from the Biden Administration need to be examined with a close eye as they have the potential to drastically impact our economy. The Ways and Means Select Revenue Subcommittee, on which I serve as lead Republican, and the Oversight Subcommittee, held a hearing on improving tax administration in our country earlier this month. I used the hearing to highlight a number of concerns I have with the President’s tax agenda, particularly the issue of how unfair it is for the vast majority of Americans who pay their taxes accurately and on time, that some people do not follow these same practices.
Our system of voluntary compliance works because most American families want to follow the rules, and they believe their friends and neighbors are following them as well. We must find ways to improve compliance and we recognize this fact. Although in doing so, we need to ensure any action to improve tax compliance does not cause further burdens for the families, farmers, ranchers, and small businesses who already put time and resources into following the law.
President Biden’s tax enforcement proposal however is not the answer, instead it raises even more concerns. The administration’s proposal would install 90,000 new government bureaucrats to particularly target American small businesses, farmers, and ranchers. These groups would be audited because the administration finds the fact that small businesses structure themselves this way, even though it is a common feature of tax systems in major economies, as unfair. While President Biden may have used a passthrough corporation for the purpose of shielding speaking and book royalties from payroll taxes applicable to income, this isn’t why family businesses use these mechanisms.
One witness from the hearing, Nina Olson, the former U.S. Taxpayer Advocate, and ombudsman position at the IRS with the specific duty to fight for taxpayer rights, emphasized the importance of tax compliance. She also pointed out the risk that comes along with devoting more and more resources to the IRS that are not dedicated to customer service. Olson noted the arbitrary methods the IRS uses to select taxpayers for audit, and that only 1.6% of federal revenue is collected annually because of audits. She also noted the extreme wait times taxpayers face when attempting to call the IRS, if they even get through at all, and that putting resources into customers service would be a more taxpayer-friendly way of increasing compliance and revenue.
We should work in a bipartisan fashion to find better ways to track down those who cheat the system. There are areas where we can work together across the aisle in a constructive way to modernize the enforcement of our tax code that does not penalize or make more work for the Nebraskans and Americans who have been following the law this whole time.