Earlier this week, ProPublica released a report based on the private tax data of wealthy Americans it had acquired. Just how it managed to acquire this information is still somewhat of an open question, but it is nevertheless a reminder of the dangers of entrusting the IRS with more and more of taxpayers’ sensitive information.
Ever since Internal Revenue Service (IRS) Commissioner Chuck Rettig claimed the “tax gap,” or the difference between taxes owed and taxes collected, could be as large as $1 trillion per year, politicians have been scrambling to outbid each other on how much money to throw at the IRS. After President Biden put forward a plan to increase the IRS’s budget by $80 billion over the next decade, already a massive increase, Sen. Elizabeth Warren (D-MA) decided to one-up him by jacking up the IRS’s budget by $315 billion over that same time period.
Underlying these proposals are deeply flawed assumptions about the actual size of the tax gap and the amount of revenue that could be raised from increased tax enforcement. But another, less obviously mistaken assumption is that the IRS should have the tools it needs to pursue every possible dollar of revenue it can get.
Yet the ProPublica leak is a reminder that it can’t be assumed that data entrusted to the IRS will necessarily stay with the IRS. While we don’t know for certain how the leak occurred, the IRS handles a great deal of sensitive information already and yet the Biden Administration wants to hire 87,000 more agents and give them access to even more data. Perhaps most disturbingly, they want to empower the IRS to snoop on every American’s bank account, which would dramatically increase the scope of potential leaks in the future.
And it’s naive to assume that future leaks would be entirely restricted to the data of the wealthiest taxpayers. Whoever acquired and passed the data to ProPublica appears to have been ideologically motivated to target the tax information of the wealthy, but the wealthy would not be the only targets of a drive to increase tax enforcement.
After all, a great deal of the tax gap comes from improperly paid refundable tax credits. Refundable credits like the Earned Income Tax Credit, Child Tax Credit, and the American Opportunity Tax Credit all have improper payment rates between 20 and 30 percent, and generally benefit lower-income taxpayers.
Taxpayers’ data security may seem like a secondary concern when only the Bezoses of the world are having their personal information leaked, but a leak could just as easily show which regular taxpayers improperly received an Earned Income Tax Credit, even if they did so accidentally. Until Congress gets to the bottom of how IRS data security was compromised and how such an error can be prevented in the future, giving the agency even more sensitive data should be off the table.
It’s also worth noting that what ProPublica did with the data was policy analysis malpractice. Unable to show anything with the data beyond what we already knew, ProPublica invented a nonsense metric (a “true tax rate”) to pretend that the tax code was not as progressive as it is. Yet this finding, that the wealthy hold more non-liquid assets than other Americans, is not a secret, and the tax code intentionally taxes income rather than wealth. After all, for the wealthy to actually do anything with their assets, they would first have to be transformed into income.
Lost amidst all the talk of the tax gap is the fact that an expanded IRS means further intrusion into American taxpayers’ personal affairs, and thereby greater potential for harmful leaks. Congress should demand answers on IRS data security and reform the dysfunctional agency before even considering budget increases and more employees.
