Defund the IRS? Done

In its long-term plan, the Biden administration will increase the IRS’s budget by two-thirds, the equivalent of $80 bn over 10 years. This funding will not impact your taxes (rates, taxable income…) but will help IRS collect due taxes and fight against tax dodging.

There is little doubt that the investment will pay for itself – actually “defund the IRS” has been widely implemented over the last decade.

A few explanation and numbers

  • Let’s restate it again. This budget allocation will not increase taxes but aims at collecting the taxes due under the existing tax rules. That’s because the agency is actually missing a lot on its receipts.
  • The “Tax Gap” is the difference between what is owed and what is effectively collected. The IRS made a study on this hard-to-assess number over 2010-2013 and found a conservative estimate for the gap at $380 bn per year.



  • Adjusted to 2020 dollars and today’s economy, that gap estimate is now worth around $630 bn/year. The IRS commissioner, Charles Rettig, stated to Congress this month that up to $1tn may actually go uncollected per year.
  • Collecting these due amounts takes experienced staff and time. Unfortunately, the IRS budget has decreased 20% since 2010. Staffing has been cut by 15% overall. 40% of those 33,400 individuals were in enforcement, and the enforcement team has been cut by 30% due to budget constraints.


  • In turn, audits have decreased over the years. 85% of companies of $20bn in assets were audited in 2010, and only 56% in 2015.
  • Meanwhile, every dollar invested in enforcement generates 5-7$ of collection, the IRS Commissioner Charles Rettig stated. Former Treasury Secretary Larry Summers argued in a 2019 paper that increasing the IRS budget by $100 billion over the next 10 years would raise about $1.15 trillion (against an estimated tax gap of $750 bn/year)
  • BTW, the IRS has started the hiring process for 2,000 employees (mostly auditors), as the 2022 budget includes a $1.7 bn funding boost to $13.6 bn.

What the critics are saying

  • The budget allocation will generate $780 bn of additional collections over 10 years, which would greatly fund the infrastructure plan currently in negotiation.
  • But there is still a large devil in these numbers. $780 of extra recollection over 10 years, means $78 bn per year. With a tax gap at $1 trillion per year, it means that $922 bn tax would still remain uncollected every year…!
  • There is a political undertone to this issue. Tax enforcement appeals to both sides of the aisle, but the Republicans have cut the IRS budget nevertheless over the years.
  • After the recent ProPublica leak of the country’s wealthiest, the democrats are getting vocal. Elizabeth Warren is for instance calling for an audit of the ultra-wealthy every three years.
  • It will take several years to hire and train the staff included in the project. They need several years to collect the monies afterward. The IRS, therefore, needs continuity for this plan to works, and the agency is concerned that future administrations may cut the effort.


Maya MacGuineas, president of the Committee for a Responsible Federal Budget, probably had the right take on the whole issue: “Everyone should agree that taxpayers ought to pay what they owe under the law. While it’s still unclear exactly how much revenue can be raised by closing the tax gap, the cost of inaction is high. This is one of those rare public policy no-brainers. It shouldn’t become a victim of partisan politics. The federal government should enforce the law.




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Written by Gontran de Quillacq

Gontran de Quillacq is an expert witness and a legal consultant. He is a recognized authority in options, trading, derivatives, structured products, portfolio management, hedge funds, mathematical finance, quantitative investment, strategy research and financial markets in general.



  1. Transfer pricing, hedge fund edition | Navesink International - […] Meanwhile, NY state is supposed to miss $10 bn of tax every year simply by lack of appropriate collection.…

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