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How Biden's budget plan aims to close the tax gap

Yahoo Finance's Denitsa Tsekova breaks down how President Biden's Administration is looking to close the tax gap in the United States.

Video Transcript

[MUSIC PLAYING]

ADAM SHAPIRO: In the next couple of weeks you're going to hear a lot of debate in Washington about how to pay for the President's spending plans. Democrats are thinking about increasing IRS clampdowns to tax the rich. It's much more complicated than that.

So to help us understand how the Biden administration might close the tax gap let's bring in our colleague, Yahoo Finance Live correspondent Denitsa Tsekova. Good to see you here. How are they going to do it?

DENITSA TSEKOVA: Well, there are two big revenue generators for that plan that is currently moving through Congress. The first one is additional funding for the IRS and the second one is additional disclosures for financial institutions. So what we are hearing is that those two provisions alone were expected to generate 700 billion of revenue over 10 years, but we're getting some different numbers, at least for the first part of the plan. We're getting actually lower revenue estimates from the Congressional Budget Office.

The first part of the plan is funding for the IRS that will go towards enforcement and is especially targeting high income earners and corporations. The funding will be used to improve technology, compliance and use to also hire and train auditors to work on those more complex investigations. And then the second part we talked about, that will require banks and financial institutions to report inflows and outflows from the taxpayer's account annually. And this will give the IRS additional information about revenue, business expenses and things like this, so they can better target their audits. But what we're hearing from experts is that the additional funding for the IRS will most likely make it into the final package, while those additional reporting requirements we talked about may face more opposition and not make it into the final package.

- Well Denitsa, what's interesting here is that we're seeing some conflicting reports just in terms of the official estimates from both the Biden administration and comparing that what we're hearing from the CBO. I guess, break down for us the estimates that are out there and the exact difference that we're seeing between some of these.

DENITSA TSEKOVA: Yeah, so what we saw from Biden and continuing from the Treasury Department a few days ago is that the additional funding for the IRS will generate $320 billion in additional tax collections over 10 years, but just the recent report from the Congressional Budget Office estimates that figure will actually be $200 billion, so significantly less. And the second part of the plan that actually generates more revenue is yet to be assessed by the CBO, but what we're hearing from experts is that we may see similar trend, that the actual number may be lower than what we hear from the Biden administration and the Treasury Department, and this may complicate things in Congress as the package continues to be debated and finalized.