Larry Summers has a thing for billionaires.
Well, that might be a bit strong. But in a recent wide-ranging conversation with wealth about inflation, the economy and yes, billionaires, Summers said we need more of them rather than fewer.
In fact, he thinks it’s crucial to maintain the freewheeling corporate culture that produces so many mega-billionaires because they also create mega-jobs. But he also believes they are undertaxed. “If we had more people like Jeff Bezos and Bill Gates and Steve Jobs who built spectacular companies and made inordinate fortunes… that would be good for America,” he said. He also advocates “a whole host of tax changes that would make them pay more and complicate any effort to establish intergenerational dynasties for the benefit of their great-grandchildren.” The ease with which the rich can pass their wealth on to their heirs is a violation of the American ideal of equal opportunity.”
Higher taxation of the super-rich isn’t the only change Summers would like to see the IRS do — he wants to greatly expand its reach and has the research to show why the move would more than pay off.
Summers reports that in 2019 he and Harvard law professor Natasha Sarin began investigating the payout if the US would allocate funds to the IRS to greatly expand tax enforcement and auditing. “We did this with the expectation that there might be a Democratic president who would try to strengthen the tax system without changing the tax rules,” Summers recalls.
In their paper, published in July 2020, Summers and Sarin cited estimates that $7.5 trillion, or 15% of all federal tax revenue, would go uncollected over the next decade. The reason: The IRS was severely underfunded. Over the past decade, the agency has suffered a 15% decline in inflation-adjusted funds and a one-fifth decline in the workforce. Only half as many agents were working on high-income returns as in 2011 or 2012. It operates an outdated software system, developed in the 1960s and believed to be the federal government’s oldest.
The two authors found that for every dollar spent on enforcement, the IRS could generate several dollars in additional revenue. They estimated that $82 billion in new funds over 10 years would bring spending back to its share of 2011 GDP — and generate about 10 times that in additional revenue. Much of these surveys would result from “deterrence,” the perception that if taxpayers see more audits and increased enforcement, they will use less risky strategies to avoid taxes.
The research even made its way into the recently passed Inflation Reduction Act (Sarin joined the Treasury as Deputy Secretary for Economic Policy CK). In the bill, the CBO noted that $80 billion in additional funding for the IRSCK should generate $124 million in net gains through 2032, offsetting a quarter of the bill’s spending. And the CBO’s analysis ruled out any possible benefits of deterrence, which played a big part in the Summers-Sarin paper. Hence the outlandish idea of Summers and sarin stands as a pillar of what it was designed for and creates a deficit-reducing budget victory for President Biden.
Read the full story of how Summers plays a key role behind the scenes in the fight against inflation here.
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