Lawmakers should avoid delivering social and economic benefits through the tax code whenever possible and work to simplify or repeal the tax expenditures already in the tax code.
Reducing the tax gap is a good idea, but the reporting requirements for financial institutions could be better-targeted at the problem at hand.
Increasing tax compliance is a major part of the Biden administration proposal to raise revenue for physical and social infrastructure. Reducing the tax gap—the difference between taxes owed and taxes paid—is a good way to raise revenue, but it doesn’t come without trade-offs, and it’s important to go about it in the right way.
Recent Biden administration proposals rely heavily on revenue from better IRS tax collections to fund spending initiatives. The American Families Plan uses several avenues to reduce the tax gap (or the difference between taxes paid and taxes owed), from increasing the IRS’s tax enforcement budget to improving information technology and expanding reporting requirements.
While it makes sense to ensure cryptocurrency transactions are treated similarly to other financial assets, the nature of these requirements as written are potentially unworkable.
Return-free filing could reduce compliance costs for many taxpayers, but would only be as good as the system it is administrating.
If Biden wants to reduce tax evasion, raising the corporate rate, increasing the incentives to engage in tax evasion, and creating a larger tax advantage to becoming a pass-through business is counterproductive.