On the campaign trail, Joe Biden argued for higher taxes on Americans who make more than $400,000 a year. Those tax increases, he said, would help fund his broader agenda and reduce inequality.
But depending on the outcome of Georgia runoff elections next month, as president he will face either a Republican Senate majority that is dead set against tax increases, or a very narrow Democratic majority that will need to choose its battles carefully.
That will present him with a political conundrum: How do you raise more money from the wealthy if you can't raise tax rates?
One potential answer: do better on enforcing the existing tax laws.
Tax experts have long identified a large "tax gap" between the amount Americans owe and what is actually collected. This is disproportionately a result of underpayment of taxes by high earners, especially in certain types of closely held partnerships and midsize businesses that face little scrutiny from either the Internal Revenue Service or outside investors.
That is exactly the type of structure - including dubious deductions - that allowed President Donald Trump to minimize his tax bill for years, according to reporting on the president's taxes by The New York Times.
The IRS' budget has declined in inflation-adjusted terms, and the agency has directed more of its enforcement work toward verifying eligibility of those claiming a tax credit for low-income workers. The rich, as a result, got less attention. In 2018, less than 7% of tax returns showing more than $10 million in income were audited, down from about 30% in 2011, according to IRS data.
That has made it easier for people to get away with questionable or illegal tax strategies. The Congressional Budget Office, in a report this month on options that Congress might consider for reducing the budget deficit, estimated that by increasing the IRS enforcement budget by $20 billion over the next decade, the government would increase tax collections by $60.6 billion, meaning it would reduce the deficit over that span by about $41 billion.
Some who have closely studied the question believe that more IRS enforcement would generate an even greater payoff to the Treasury. Charles O. Rossotti, a former IRS commissioner; Natasha Sarin, a University of Pennsylvania professor; and Larry Summers, a former Treasury secretary, have projected that an additional $100 billion in enforcement spending, combined with adjustments to the agency's tactics and strategy, would generate $1.2 trillion to $1.4 trillion more in taxes collected, primarily from high-income individuals.
"The IRS doesn't have the resources it needs to go after the big fish," Sarin said. "That puts undue burden on everyone else."
The scale of the tax gap, and its tilt toward higher-income Americans, reflects not just a falling IRS enforcement budget, but also a shift in how businesses are organized. Trump's own tax strategies, as reported by The Times this year, offer an extreme example of the tactics that are responsible for billions in lost revenue to the Treasury.
Over the last generation, many American businesses have shifted from being traditional "C corporations," which owe corporate income tax and which the IRS has long experience auditing, to being "S corporations" or partnerships, entities that pass through their earnings to individuals, who in turn pay individual income tax. But IRS enforcement has not kept up with that shift, and partnerships and S corporations are rarely audited. Only 0.3% of them were in 2017.
A distinctive feature of these entities is they have a single owner or small group of partners, so there tends to be little outside oversight of their financial behavior. Key financial information is not reported independently to the government, making it possible for them to hide information from their tax preparer or seek one out who will look the other way.
Individuals who earn wages have those earnings reported to the IRS by their employer. And at the other extreme, although the largest companies may use aggressive strategies to reduce their corporate income tax burden, they have independent boards of directors and white-shoe accounting firms with their reputations on the line standing in the way of crossing into illegality.
The IRS' own data for 2011 through 2013 estimates that $104 billion per year of that tax gap can be attributed to nonfarm proprietor income, partnerships, S corporations, and rents and royalties. By contrast, the comparable shortfall for all earnings of wages, salaries and tips amounted to only $9 billion a year.
"The IRS does not like to do partnership returns," said Jerry Curnutt, a retired IRS agent who focused on partnerships and who has since consulted with states on enforcement. "The law can be quite complex, and most folks who grow up within the service grow up auditing individuals and corporations, doing very little if any partnership work."
For years, he has raised alarms about a strategy that he says many real estate investment partnerships use to underreport their tax obligations. They enjoy the benefits of paper tax losses because of depreciation over many years, but fail to report offsetting gains when they eventually sell the property and pay off debts.
The numbers involved can be in the tens or even hundreds of millions of dollars, he said. They go undiscovered in part because decades can pass in which the obligations slip through the cracks either deliberately or accidentally - and in part because the IRS lacks enough expertise and enforcement muscle for closely held partnerships, he said.
Some of the actions that cause the tax gap can be much simpler. The owner of a business that has significant sales in cash merely pockets some of the money rather than depositing it in the bank and accounting for it properly; or the owner of a closely held business puts a family personal vacation on the corporate credit card.
"There are trillions of dollars running through businesses with essentially no compliance or oversight," Rossotti said. "It's a compliance-free zone."