POLITICO Pro Q&A: Sen. Elizabeth Warren on her IRS funding plan

Sen. Elizabeth Warren wants to dedicate a mandatory funding stream to enforcement activities at the IRS, specifically aimed at increasing its ability to examine more wealthy Americans and major corporations.

A decade’s worth of funding cuts to the agency and a shrinking workforce led to a corresponding decline in audits across the board, with steep drop-offs in scrutiny of higher-income taxpayers. Warren (D-Mass.) offered some broad descriptions of her plan in a Finance Committee hearing earlier this week with IRS Commissioner Chuck Rettig, who responded enthusiastically. He said mandatory, consistent and adequate multiyear funding would absolutely allow the IRS to plan appropriately, particularly when it comes to hiring.

Warren, who plans to soon roll out legislation to boost IRS funding and set up new third-party reporting requirements for non-wage income, gave POLITICO Pro Tax some additional details during a recent interview.

This transcript has been edited for length and clarity.

How much money are you talking about making mandatory as part of the annual IRS budget, which in the current federal fiscal year is appropriated at $12 billion and would climb to $13.2 billion under President Joe Biden’s request for fiscal 2022?

We need to reverse our approach to the IRS. I’m pushing for more support for IRS enforcement so that the wealthiest individuals and biggest corporations will have to follow the law just like everyone else. So there are two parts we’re talking about — one is how much money, and it’s also the way in which the money is put into the hands of the IRS.

I have proposed nearly doubling the funding for the IRS but also making a chunk of their funding mandatory and targeted toward high-income individuals and corporations. The problem is not only that IRS funding has been cut, it’s that when funding goes up and down and up and down and up and down, the IRS doesn’t have the resources to build out a more expert group that has the skill set to go after the really sophisticated tax dodgers. So the mandatory funding would mean the IRS could commit to hiring and training a team of experts who can focus on giant corporations that hide their money overseas or manipulate their income reports, and the team will be far more effective at enforcing current law.

There are other areas where I believe we should change the law to expand revenue — a wealth tax, a book-profits tax — but this is simply about enforcement to make sure corporations and rich people pay the taxes that are already due. I see it as kind of three legs on a stool: We need to close up some of the loopholes on the corporate side, we need to put a wealth tax in place and we need serious enforcement.

Would the mandatory level be adjusted annually?

It depends on how you set up the mandatory funding; it may change over time. Think of it this way: The Consumer Financial Protection Bureau has mandatory funding that’s a fixed portion of the income to the Federal Reserve, and the Fed’s income grows over time not because of inflation but because of the activities that the Fed draws revenue from increase over time. I think that’s a better way to think of the mandatory structure. We’re still in the talk-through-it stage to decide on the exact way.

But since I come out of the banking and regulatory side of things that has dealt with mandatory funding since the mid-1800s, this is a logical approach for me. This is what makes sense to me. When the Office of the Comptroller of the Currency was set up back during the Civil War, that Congress decided that funding that agency needed to be moved out of the political process. So it received mandatory funding from the banks that it was supervising. The whole idea was to insulate it from politics, recognizing that politicians and lobbyists would keep pushing to cut funding if they thought that the agencies were doing too good of a job. The idea was to take away that funding tether and let these agencies do these jobs independently, and today that’s how the OCC, the FDIC, the Fed and the CFPB are all funded.

It’s more predictable and less vulnerable to political influence. It lets [the IRS] do something they need to do — develop a team that has real expertise in going after the highest-dollar tax cheats, the most sophisticated tax cheats.

How do you define the very wealthy and giant corporations that would fall under this targeted enforcement microscope in your proposal?

For my wealth tax, it’s for people with assets of more than $50 million, and for my corporate book profits, it’s public reporting of more than $100 million in income in a given year. And by the way, when President Joe Biden was a candidate running for president, that $100 million is where he put it as well. It might change a bit on where the team focuses, but this gives a ballpark for where I’ve already looked at this.

What audit coverage rate are you aiming to achieve on these two classes of taxpayers?

I proposed on the wealth tax that we hit a 30 percent annual audit rate.

What do you make of opposition to your plan, warning about the fungibility of money and the possibility that new IRS audit tactics could end up affecting taxpayers lower on the income spectrum?

Congress gives money to the agencies with strings attached all the time, and then we have oversight over those agencies to make sure that’s how they’re spending the money. There’s nothing different about the IRS. If we explain how we want that money spent, we certainly have the right to exercise oversight and make sure that is how the money is spent.

On your proposal for a new third-party information reporting requirement, would it only affect taxpayers you believe warrant the extra enforcement?

That’s certainly the place to start, with the biggest taxpayers and the biggest transactions. Compared to all the wage earners whose W-2s get filed, which have in effect gone through third-party validation of their claimed income, the same should be true for billionaires and giant corporations.