What’s the State of Tax Fairness? Despite Promising Biden Reforms, It’s Still Not Good

By William Rice

On Thursday, President Biden will address the nation during the state of the union, an annual opportunity to evaluate where we are as a country. As Tax Fairness advocates, this is also an opportunity for us to pause and consider where we are in the ongoing work of creating a fair tax code. This goal is one that has been advanced significantly by President Biden and Congressional Democrats through a slate of accomplishments. Unfortunately, many Democrat proposals have been met with Republican opposition and congressional obstacles that have impeded progress.

Over the past three years, President Biden and Congressional Democrats have done more for the cause of tax fairness than any administration and Congress in at least a generation. The Inflation Reduction Act (IRA) they enacted in 2022 created a minimum tax on the biggest corporations, some of which were getting away with paying little or nothing at all. The law also created a tax on corporate stock buybacks, which reward CEOs and other already-wealthy shareholders at the expense of worker wages and other useful business investments. 

And maybe most important, the IRA restored adequate funding to the Internal Revenue Service, which had been purposely starved of resources by Congressional Republicans over the previous decade. The GOP’s apparent aim in enfeebling the IRS was to shield rich and corporate tax cheats from having to pay what they owed, while at the same time frustrating honest taxpayers with poor customer service in the hopes of souring them on the whole tax system.  

IRS staff—especially expert staff—was so depleted that by 2020, the tax filings of certain low-wage workers (returns that are easy to examine) were more likely to be audited than those of people with income over $1 million, returns that often take lots of time and experience to decipher. Rich and corporate tax cheats saw their chance and took it: in a three-year span shortly before passage of the IRA, it’s estimated that a million-and-a-half wealthy tax evaders failed to pay the Treasury up to $66 billion.

The Democrats’ determination to give the IRS the financial tools it needs to do its job is already paying off. The agency has collected over half a billion dollars from high-end tax evaders (the focus is on incomes over $1 million), with much more to come. The IRS recently started sending out 125,000 notices to individuals making over $400,000 a year who never even bothered to file a tax return, let alone pay their taxes. It’s estimated that the reinvigorated IRS will collect over half a trillion dollars over the next 10 years from rich and corporate tax cheats.

No one making less than $400,000 will face increased scrutiny.

On the service side, the agency has cleared return backlogs, cut phone-wait times and even opened more than 50 centers for walk-in service. This year the IRS began offering a free, online filing system in select states, with a nationwide rollout coming next. This will save taxpayers hours of hassle and hundreds of dollars they now pay for-profit tax preparers. 

This is some of what President Biden and Congressional Democrats have already done to forward the cause of tax fairness. Equally encouraging are their bold plans for further reforms. 

Both the President and the top tax-writer in the U.S. Senate, Ron Wyden (D-OR), have offered proposals to finally tax the biggest source of income for the ultra-wealthy: the annual growth in the value of assets they don’t sell. For billionaires and others inhabiting the upper stratosphere of wealth, these so-called “unrealized gains” are as good as cash on the barrelhead, yet they can now go untaxed forever. Both plans would raise around $500 billion over 10 years exclusively from a handful of the nation’s very wealthiest households. That’s money we could use to lower costs and improve services for all of us who aren’t filthy rich. 

Just last year, the President proposed substantially raising the corporate tax rate on both the domestic and foreign income of U.S. firms and closing loopholes that let big companies pay too little tax. Earlier in his presidency and during his first campaign for president, Biden called for surtaxes on incomes over $10 million, ending the big tax discount for unearned investment income over $1 million, and closing a loophole that makes unrealized gains disappear for tax purposes when received by lucky heirs of the rich. 

A committee-passed bill from Congressional Democrats returned the top tax rate on the highest incomes to where it was just seven years ago; limited a tax break for noncorporate businesses to those owners with less than $400,000 in annual profits; and strengthened the anemic estate tax, the only federal curb on dynastic wealth. Senators Bernie Sanders (D-VT) and Elizabeth Warren (D-MA), together with lots of Democratic co-sponsors, have proposed special taxes on not just the income but the wealth of the hyper-rich. 

Yet despite all this realized and potential progress, it’s still impossible to call our federal tax system fair or hope that we’re near achieving true fairness. Wealth is still taxed far more lightly than work. Corporations are still rewarded for shifting American profits and shipping American jobs offshore. Economic dynasties continue to swell, largely untaxed. Our out-of-whack tax system contributes to the widening wealth and income gaps that destabilize our economy, disorder our society, and endanger our democracy. 

And Republicans in Congress apparently like it that way (even if their voters generally don’t). Rather than trying to close loopholes and raise rates on the wealthiest households, they want to permanently extend the temporary tax provisions in the 2017 Trump-GOP tax law that expire soon and mostly benefit the rich. Rather than collecting more taxes from huge corporations that aren’t paying their fair share—and sometimes aren’t paying anything at all—they want to give more tax-break handouts to Corporate America. Rather than trying to tame domineering economic dynasties with a more robust estate tax, they want to eliminate it altogether. 

So the state of tax fairness is better than it was four years ago, and with the right people in charge, could be a lot better. But right now, we still have a long way to go. And it’s up to all of us to change that.