Treasury Secretary Janet Yellen said Tuesday that increased enforcement of existing tax laws by the Internal Revenue Service (IRS) in collecting unpaid taxes plays a role in closing the federal government’s nearly $2 trillion annual budget deficit.
During a press conference ahead of the 2024 annual meetings of the International Monetary Fund and World Bank, Yellen was asked by FOX Business Network’s Edward Lawrence about how the U.S. can persuade other countries to continue to buy U.S. debt.
“By making sure that we stay on a sound fiscal path and that does require deficit reduction over the coming years,” Yellen said. “I believe it’s very important that we remain focused on keeping the real net interest cost of the debt near historic levels and certainly under 2%.”
She then went on to explain that the Biden-Harris administration has taken several steps aimed at lowering budget deficits by bringing in more tax revenue, including “by giving the Internal Revenue Service the resources that they need to close what is estimated over the next decade to be a $7 trillion tax gap.”
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“There is a lot of money that is owed under our tax laws to the Internal Revenue Service that isn’t being collected, and we’re beginning to remedy that problem,” Yellen explained. She also noted the implementation of the corporate alternative minimum tax and efforts to lower prescription drug costs for government programs as contributing to the deficit reduction.
A year ago, the IRS released its tax gap projections which showed the tax gap increased to $688 billion in tax year 2021, which the agency called a “significant jump” from its prior estimates. The tax gap comprised $542 billion in underreporting, $77 billion from nonfiling and $68 billion from underpayment.
IRS Commissioner Danny Werfel said the data showed “the importance of increased IRS compliance efforts on key areas” and pointed to the funding provided under Democrats’ Inflation Reduction Act as helping step up IRS enforcement.
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The law boosted the IRS budget by about $80 billion over 10 years, about $45 billion of which went to enforcement with $25 billion going to operations support, nearly $5 billion to business system modernization and more than $3 billion going to taxpayer services, according to the Congressional Budget Office.
“With the help of Inflation Reduction Act funding, we are adding focus and resources to areas of compliance concern, including high-income and high-wealth individuals, partnerships and corporations,” Werfel said.
Last month, the Treasury Department and the IRS announced they recovered $1.3 billion in taxes from high-income, high-wealth individuals who either failed to file tax returns in the years since 2017 or failed to pay recognized tax debt.
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The agencies said the increased funding for tax enforcement allowed them to assign senior employees to cases they were previously unable to attend to, which resulted in the collection of $1.1 billion in taxes from millionaires with delinquent tax debt and $172 million from wealthy taxpayers who hadn’t filed returns.
FOX Business’ Edward Lawrence contributed to this report.
