Is reforming the IRS the answer to funding Social Security and other programs?

Written by NPR staff writer Katie Schwarzmann

For a bill pushing for universal Social Security benefits and paying for them with a tax on high-income earners, Joe Biden’s proposal was a far cry from that of former President Barack Obama. That was a notable departure from other big bills, like Medicare Part D and the economic stimulus, that were paid for partly by fees or user fees.

In the years following Obama’s presidency, Democratic lawmakers from party insiders to advocates have been pushing for a complete tax overhaul of the Internal Revenue Service. That, many of them claim, would finally make a return to requiring a federal income tax a reality.

Without any support in the Senate, the Biden bill died quickly. And though Biden did write the bill in 2015, it never made it to the Senate floor for a vote. Democrats are missing a unique opportunity to work with President Donald Trump on a sweeping new revenue stream to finance Social Security and other key programs, some argue.

The obstacles Democrats faced

Reform of the Internal Revenue Service was an idea the Democrats have championed over the decades. The top IRS employee, Arthur Andersen, was found to have repeatedly violated the law by auditing the Social Security Administration and giving false evidence to judges. And, as the story goes, the last president to take on the IRS was President Lyndon Johnson, who had some success in reforming the agency.

A tax reform bill (what became the Tax Reform Act of 1986) never got out of Congress, and instead it was designed in large part to eliminate tax breaks for investment income for the wealthy.

In 1989, when Democrat Bill Clinton was elected president, he promised to bring “a new era of opportunity” to America. A few months later, he was lying low for almost a month after the murder of a guard at the Branch Davidian compound near Waco, Texas. As one of the worst ever tragedies at a federal building, the event caused ripples across the country and led to a series of reforms.

And Clinton strongly endorsed the Biden bill. He gave a speech that criticized both the IRS and the staff of the US government for being too inflexible and using “the blunt and inefficient weapon of bureaucratic denial.”

Before the committee hearing, he wrote to senators urging them to “support a bill that will have a major impact on this country.”

Democrats still trying

As a presidential candidate in 2016, Democrat Hillary Clinton vowed to reform the IRS. But she quickly backtracked and focused on her message of electing the first female president.

As secretary of state, John Kerry also supported changing the IRS’s funding, saying he wanted to examine the need for “narrow, fiscally sustainable reform in the IRS.”

Though former President Barack Obama campaigned against the “perverse incentive” of high-earners to file under the much lower tax rate for short-term rental income, he signed the bank tax, which turned the tax code on its head.

Now, as Trump makes a push for tax reform, his administration is saying they do want to change the way the IRS operates, but they are still trying to reconcile Democrats’ willingness to support a system that would tax the very wealthy more than the rest of the nation.

In 2016, when Jeb Bush was running for president, he said it was necessary to reform the IRS to “keep economic faith with our hard-working men and women.”

And there are still Democrats who talk about reforming the agency. In 2016, a candidate named Sen. Bernie Sanders was touting the potential of tax reform that would make it possible for low-income people to gain access to the same quality benefits enjoyed by the highest earners.

Advocates say a return to a system like the old IRS and a way to fund it with an income tax on the wealthy could be a game-changer. And with the program’s official insolvency looming in 2034, advocates say the need for overhaul is more pressing than ever.

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