Senators Go After Unemployment Fraud — But Not Tax Cheats — To Pay For Infrastructure

Under pressure from conservative groups, GOP senators refused to strengthen IRS enforcement to pay for the bipartisan infrastructure deal.

The Senate voted to move forward on a $1 trillion infrastructure package Wednesday, after a bipartisan group of senators agreed on a deal that includes $500 billion in new spending on roads, bridges and waterways.

Much of the wrangling was over not just what would be in the bill but how to pay for it. And on that front, Republicans ― and conservative anti-tax groups ― seemed to get most of what they wanted.

Democrats proposed raising taxes on wealthy individuals and corporations, as well as giving the IRS more funding to crack down on tax cheats.

Sen. Kyrsten Sinema (D-Ariz.) speaks as (from left) Sens. Kevin Cramer (R-N.D.), Bill Cassidy (R-La.), Lisa Murkowski (R-Alaska), Susan Collins (R-Maine) and Rob Portman (R-Ohio) listen during a news conference after a procedural vote for the bipartisan infrastructure framework.
Sen. Kyrsten Sinema (D-Ariz.) speaks as (from left) Sens. Kevin Cramer (R-N.D.), Bill Cassidy (R-La.), Lisa Murkowski (R-Alaska), Susan Collins (R-Maine) and Rob Portman (R-Ohio) listen during a news conference after a procedural vote for the bipartisan infrastructure framework.
Alex Wong/Getty Images

The IRS estimated that it missed out on an average of $441 billion per year from 2011 through 2013 due to taxpayers not complying with the law. IRS Commissioner Charles Rettig, an appointee of former President Donald Trump, said the tax gap could be as much as $1 trillion annually. The Congressional Budget Office has estimated that another $40 billion of IRS funding would yield $103 billion in revenue.

The richest 25% of Americans also pay less in taxes than many ordinary workers do, and many of the nation’s top earners pay next to nothing in taxes, according to a recent ProPublica report.

But Republican senators put their foot down and said they would oppose legislation with stepped-up IRS enforcement.

Instead, the bipartisan legislation will go after fraud in the unemployment insurance program, which benefits struggling Americans who are out of work. Unemployment insurance fraud exploded during the pandemic, much of it geared toward exploiting obsolete state insurance systems.

Democrats say they have no problem rooting out waste and fraud in the unemployment program, but they take issue with going after only that pot of money ― long a target of Republicans ― and not after people who are evading their taxes as well.

“Republicans caved to their donors who don’t want any increased scrutiny on their tax evasion schemes, and instead set their sight on various COVID-relief programs,” Senate Finance Committee Chair Ron Wyden (D-Ore.) said. “I’m all for cracking down on unemployment insurance fraud by criminal syndicates and upgrading unemployment insurance technology, but it’s absurd to say you’re only going to go after unemployment insurance fraud when the IRS commissioner estimates that tax cheats are potentially costing us $1 trillion per year.”

The bipartisan group of negotiators insist that their plan will be fully paid for, in an attempt to appease senators wary about adding to the deficit. Savings would also come from various other sources, including repurposing roughly $200 billion previously allocated to address the COVID-19 pandemic and changing prescription drug rules.

The Labor Department’s inspector general has estimated state workforce agencies could improperly pay as much as $87 billion in federal benefits Congress approved in response to the pandemic. That sum includes both erroneous payments and actual fraud, and represents about 10% of the projected overall amount of federal unemployment spending.

Nonpartisan analysts told The Washington Post that savings from cutting waste and fraud in the unemployment insurance program will likely amount to just $35 billion over the next decade ― far less than going after tax cheats. Cutting spending there in a way that would significantly help pay for the infrastructure bill could very well have an impact on beneficiaries as well.

A summary of the bipartisan deal indicated the negotiators were still waiting on a score from the Congressional Budget Office, meaning lawmakers don’t yet know how much money their anti-fraud proposal will generate. The outline describes the policy as “recouping fraudulently-paid benefits” but provides no details.

“For sure, there are ways to improve the accuracy of UI payments and go after the real criminals who have ravaged pandemic unemployment programs with identity theft crime ― and we are hopeful this bill will go in that direction,” Andrew Stettner, an unemployment policy expert with The Century Foundation, said in an email. “But Congress and DOL should be sure that any new fraud prevention activities do not follow a dangerous pattern of wrongly accusing workers of fraud, and have strong due process features in place.”

Democrats are likely to include the provision strengthening IRS enforcement in their budget reconciliation package they plan to advance in the Senate in the coming weeks. They’re also looking to repeal parts of the 2017 GOP tax cuts by raising rates on corporations and the wealthy. Both proposals would help pay for the reconciliation bill, which requires a simple majority of votes.

On Thursday, Majority Leader Chuck Schumer (D-N.Y.) said the Senate is on track to pass both the bipartisan infrastructure bill and a blueprint outlining a $3.5 trillion reconciliation package ― which includes spending on housing, climate, health care and other issues ― before the chamber recesses next month.

“We will move forward on both tracks,” Schumer said. “I’m proud of my Democratic caucus, every one of them voting yesterday for this bill and all pledging to go forward on the second track as well.”

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