Mr. Rossotti has proposed that the I.R.S. require the new forms only for people with taxable income above a generous threshold. A bill including Mr. Rossotti’s plan, introduced by Representative Ro Khanna of California, sets that threshold at $400,000, to minimize the burden on small business. The money is undoubtedly in chasing wealthy tax cheats, but equity argues that business income, like wage income, should be subject to a uniform reporting standard. Small businesses ought to pay their taxes, too.
The proposal would not increase the amount anyone owes in taxes. It would, instead, increase the amount paid in taxes by those who are currently cheating.
It would have the immediate benefit of scaring people into probity.
Consider what happened after Congress passed legislation in 1986 to require taxpayers to list a Social Security number for each person claimed as a dependent. The government could not easily crosscheck all of those claims then, but the requirement itself caused a sharp drop in fraud. The next year, seven million children abruptly disappeared from tax returns.
To realize the full benefit of the new data, however, Congress does need to make a significant investment in upgrading the I.R.S.’s outdated computer systems, and in hiring enough qualified workers to examine suspicious cases and to hold accountable those who cheat.
In 2008, for example, Congress passed a bill to require credit card processors to report payments processed on behalf of online retailers on an annual form called a 1099-K so the I.R.S. could verify the income reported by those retailers. But in December, the Treasury Department’s inspector general reported that “resource limitations” had prevented the I.R.S. from investigating more than 310,000 cases in which individuals and businesses failed to report more than $330 billion in income documented on 1099-Ks.
Congressional Republicans, unable to muster public support for reductions in federal spending, have pursued that goal indirectly by constraining federal revenue, in part by hacking away at the I.R.S.’s budget. The share of all tax returns subject to an audit declined by 46 percent from 2010 to 2018, according to the Congressional Budget Office. For millionaires, the decline in the audit rate was 61 percent. Today, the government employs fewer people to track down deadbeats than at any time since the 1950s.
The result is a parallel increase in federal debt and in tax fraud.
Mr. Rossotti, together with the Harvard economist Lawrence Summers and the University of Pennsylvania law professor Natasha Sarin, argued in an analysis published in November that investing $100 billion in the I.R.S. over the next decade, for technology and personnel, in combination with better data on business income, would allow the agency to collect up to $1.4 trillion in lawful tax revenue that otherwise would go uncollected.