The wealthiest 1% of Americans dodge $163 billion in taxes every year, Treasury says

• The top 1% of US earners dodge $163 billion in taxes yearly, making them the biggest evaders by far.
• Tax-dodging worsens inequality by forcing lawmakers to cut aid, the Treasury Department said.
• The White House plans to invest $80 billion in the IRS to better enforce tax collection, especially among rich Americans.

The richest Americans are the ones dodging the most in US taxes. It's not even close.

The top 1% of American earners evade about $163 billion in taxes every year, researchers at the Treasury Department said in a report published Wednesday. That counts for roughly 28% of the total US tax gap, a measurement of taxes owed compared to taxes collected. The total gap is about $600 billion on a yearly basis and will cost the government $7 trillion in lost revenue over the next decade, the department said.

Top earners' evasion easily outpaces the next wealthiest Americans. Those in the 95th to 99th income percentile skip out on $144 billion in tax payments annually, according to the report. That counts for 24.7% of the nationwide tax gap.

Meanwhile, the top 0.5% dodges $120 billion in yearly payments and counts for 20.6% of the gap.

Much of the disparity is driven by wealthy Americans' ability to shield themselves from tax payments. Higher-income taxpayers can tap accountants, tax preparers, and other services to lower their true tax liability. These Americans also know the government has few resources to counter such evasion, they're more likely to skirt the rules, the researchers said.

That practice is helping fuel economic inequality across the country, the department said. By exacerbating the tax gap, wealthy Americans force lawmakers to chose between higher budget deficits or tax hikes to pay for social programs. Both options are historically unpopular and tend to keep Congress from beefing up key support like unemployment benefits, food stamps, and infrastructure spending.

The Biden administration has a plan to stop the tax gap at the source. Convincing Congress to act, however, remains a tough battle.

Democrats' crackdown plans

The White House seeks to strengthen tax enforcement to offset some of the cost of its $3.5 trillion infrastructure proposal. Treasury estimates that Biden's proposed $80 billion investment in the IRS could bring in an additional $700 billion over 10 years. That's still with hundreds of billions in taxes going uncollected each year, as Insider's Ayelet Sheffey reports.

Biden's funding would also place more focus on the wealthiest Americans' tax gaps. The number of agents devoted to working on sophisticated tax evasion enforcement has fallen by 35% over the last decade, according to Treasury. The IRS's budget has fallen by 20%, while audits fell by 42% from 2010 to 2017. According to a White House fact sheet, there's been an 80% decline in the audit rate for those making over $1 million a year from 2011 to 2018.

A bombshell ProPublica report also revealed the extent to which America's wealthiest use the tax code in their favor and pay shockingly little in taxes. While all of their methodology is legal, the report kickstarted discussions of potential tax reform, and prompted five former Treasury secretaries to write a New York Times opinion piece on the necessity of bolstering the IRS.

The extent of wealthy Americans' tax evasion could be even larger than the Treasury forecasts. Charles Rettig, the IRS's commissioner, has said the tax gap could actually exceed $1 trillion.

The windfall from IRS reform could exceed initial forecasts as well. The White House has also called on using information from financial institutions to enforce income taxes. Boosting the IRS's budget and expanding its toolbox could yield as much as $1.6 trillion in uncollected tax revenue over the next decade, Treasury said, more than double the $700 billion jackpot first estimated by the Biden administration.