The Congressional Budget Office estimates that adding $40 billion of IRS funding would add $103 billion in federal revenue.
US Internal Revenue Service
Republican and Democrat senators have spent weeks trying to negotiate a $1.2 trillion infrastructure deal, including funding for roads, bridges and broadband. But, as the Wall Street Journal reports, they have struggled with how to cover the cost without increasing the federal deficit. The deficit has reached record levels over the past few years because of tax cuts and pandemic-related spending. The senators have pledged that the plan would be fully paid for with new revenue.
In this year’s American Society of Civil Engineers’ Infrastructure Report Card, ASCE called for “big and bold” relief, estimating it would cost $5.9 trillion over the next decade to restore roads, bridges and airports to a safe and sustainable condition. That’s about $2.6 trillion more than what government and the private sector already spend.
“This report card is a warning and a call to action,” said Transportation Secretary Pete Buttigieg. “A generation of disinvestment is catching up to us, and we must choose whether to allow our global competitors to pull ahead permanently, or to invest in the safety, equity, resilience and economic strength that superior infrastructure can bring to Americans.”
But Republican senators negotiating the $1.2 trillion bipartisan bill drew a hard line against enforcing Internal Revenue Service laws to fund more-substantial progress in restoring American infrastructure.
The Senate’s broad infrastructure bill would provide about $550 billion in additional funds on top of existing spending, divided among major categories. The bipartisan infrastructure deal is slated to invest $110 billion of new funds for roads, bridges and major projects. The bill is still being written, and details should be released soon.
Unfortunately, the U.S. has been underfunding roadway maintenance for decades, which ASCE says has created a $786 billion backlog of road and bridge capital needs. The bulk of the backlog ($435 billion) is in repairing existing roads, while $125 billion is needed for bridge repair, $120 billion for targeted system expansion, and $105 billion for targeted safety, operational and environmental enhancements.
So you can understand why enforcing tax law looks attractive. Last year, the IRS estimated it failed to collect an average of $441 billion in tax revenue per year from 2011 through 2013 because taxpayers did not comply with tax law. (The Huffington Post notes that IRS Commissioner Charles Rettig, an appointee of former President Donald Trump, said the tax gap could be as much as $1 trillion annually.)
The Congressional Budget Office estimates that adding $40 billion of IRS funding would yield $103 billion in additional federal revenue. IRS appropriations have fallen by 20% in inflation-adjusted dollars since 2010, causing a 22% reduction in staff. Funding and staff allocated to enforcement has dropped about 30%. Between 2010 and 2018, the share of income tax returns examined fell by 46% for individuals and 37% for corporations.
Senate negotiators have already ruled out many adequate sources of revenue for new infrastructure spending, including corporate tax hikes, an increase to the gas tax, and user fees. They’ve resorted to more politically appealing ways to offset the cost of the bill, including having the government auction off spectrum bandwidth to telemarketing companies and selling portions of the Strategic Petroleum Reserve.
Instead, it appears the bipartisan infrastructure legislation will seek funding by going after fraud in the unemployment insurance program, which benefits Americans who are out of work.
The Washington Post reports that nonpartisan analysts estimate unemployment-insurance fraud and overpayments are likely to amount to only $35 billion during the next decade. And that cutting unemployment-insurance spending in a way that would significantly help pay for infrastructure would very likely impact legitimate beneficiaries as well.