President Joe Biden and congressional Democrats are focusing policy efforts on the “tax gap,” a hazy estimate of the difference between what taxpayers pay in taxes and the amount the IRS thinks they actually owe.
Democrats plan to close this gap and increase tax collections by $700 billion through doubling the size of the Internal Revenue Service. They are likely to find that they reap less money than they hope. But as Democrats work through the tax gap, they should pay more attention to the “spending gap.” That is to say, unauthorized and expired federal spending on
“zombie programs.” This spending totals hundreds of billions in taxpayer dollars every year.
The recently enacted $1.9 trillion American Rescue Plan Act was just the down payment on the expensive agenda that Democrats have planned. In addition to imposing higher tax rates to pay for part of all this new spending, Biden plans to boost significantly the IRS’s tax enforcement budget to close the tax gap.
The last official IRS estimate from 2019 found a tax gap of $381 billion, after accounting for late payments. The head of the IRS recently said he thinks it could be as much as $1 trillion. The actual number probably lies somewhere within that range, however, and the Congressional Budget Office found that the rate of return from each dollar spent on enforcement would yield much less than what the Biden administration is counting on.
Moreover, there are legitimate concerns about beefing up the IRS given its track record of abusing its power. Boosting taxpayer services and simplifying the tax laws would arguably be more effective at helping citizens understand and comply with tax laws.
The tax gap efforts are designed to pay for a portion of Biden’s $2.3 trillion job and infrastructure plan, which will be added on top of the current deficit projection of $2.3 trillion for this year and an annual average of $1.2 trillion over the next decade. The long-term outlook is grim with no relief in sight from a flood of red ink. Instead of evermore bloated government, policymakers should be focused on reining in spending.
One way to do so is for Congress to perform its due diligence. Congress is supposed to review periodically federal programs as their authorizations expire, but this does not always happen, and appropriators continue to throw money away. The CBO recently identified a total of 402 expired authorizations that received at least $432 billion in funding, up from $332 billion a year ago.
These zombie programs that live on past their authorizations raise concerns about whether congressional committees and appropriators are properly fulfilling their oversight responsibilities when spending taxpayer dollars. Taxpayers deserve a Congress that carefully evaluates programs to ensure that they are meeting performance expectations and that funding is being spent as wisely as possible.
Fixing this issue would also help the CBO produce better budget reports. The agency produces regular baseline projections of spending and revenues that provide the benchmark against which all legislative proposals are scored. Because Congress requires the CBO to produce its projection based on a strict reading of spending authorized by current law, dollars appropriated to unauthorized programs are unaccounted for in the baseline and subsequent legislative scores. This problem can also make reform bills that reauthorize programs at a reduced funding level look like budget increases.
Congress should enact reforms to compel authorizing committees to address expired authorizations. For example, the Unauthorized Spending Accountability Act previously introduced by Rep. Cathy McMorris Rodgers would require that any spending provided to unauthorized accounts be reduced automatically by 10% in the first year and 15% in each of the following two years, after which they would be completely sunset.
Congress has a tremendous amount of work to do to put America’s finances in order. Killing zombie programs should be one of the easier steps down a very long road.
Demian Brady is the vice president of research at the National Taxpayers Union Foundation, a nonprofit organization dedicated to tax policy research and education at all levels of government.
