In US, a millennial economist helps power a tax evasion ‘brain trust’

The appointment of Natasha Sarin was viewed by many as a testament to how important tax code compliance is to the administration and has given the former assistant professor of law and finance at the University of Pennsylvania the chance to turn her research into policy.

Written by Alan Rappeport

As the Biden administration hunts for revenue to pay for trillions of dollars in infrastructure, education, child care and other investments, it has focused on a seemingly simple strategy: Mobilize the Internal Revenue Service to crack down on tax cheats.

Shrinking the $7 trillion so-called tax gap has long been an aspiration for policymakers and scholars, but it is taking on new urgency as the Biden administration looks to win bipartisan support for its infrastructure proposal. With Republicans opposed to raising taxes, tracking down uncollected revenue could be crucial to paying for the president’s ambitious and expensive plans and to ensuring that the rich pay their fair share.

The number-crunching behind this work is taking place at the Treasury Department, where Treasury Secretary Janet Yellen has created a team to tackle the issue and staffed the agency with economists and others who have spent years studying how the government can hunt down money that it is owed but fails to collect. The group, known internally as the “compliance brain trust,” includes four members of Treasury’s career staff along with Kimberly Clausing, deputy assistant secretary for tax analysis, and Natasha Sarin, a 32-year-old Harvard-trained economist who has written extensively on closing the gap.

Their work is about to get more scrutiny as lawmakers debate how much money the IRS should get to help pay for an infrastructure plan. A bipartisan group of senators was coalescing around a proposal this week that would provide the IRS with an additional $64 billion over eight years, according to a Senate aide. Top Republicans have scoffed at the Biden administration’s proposal to give the IRS $80 billion over a decade, arguing that the agency cannot be trusted with more money and power.

The appointment of Sarin was viewed by many as a testament to how important tax code compliance is to the administration and has given the former assistant professor of law and finance at the University of Pennsylvania the chance to turn her research into policy. In March, Yellen hired Sarin to serve as Treasury’s deputy assistant secretary for microeconomics.

But her appointment also raised questions about the progressiveness of Biden’s agenda given her previous writings and her ties to Lawrence Summers, who has become a vocal critic of the president’s spending plans, warning they would fuel rapid inflation that could get out of control.

After completing her Ph.D. in 2018, Sarin teamed up with Summers, who was her adviser, on a project studying the tax gap and looked into ways those funds could be recouped.

In a 2019 publication, Sarin and Summers determined that a more robust IRS could shrink the tax gap by 15% and generate more than $1 trillion in the next decade by ramping up audits of the rich and enacting more rigorous financial reporting requirements. They concluded the investments would be “very progressive” by focusing on audits that would yield more revenue and gain more visibility into “opaque” income streams that tend to accrue to the rich, such as rental income.

President Joe Biden has proposed pumping $80 billion into the IRS to help the beleaguered agency find money that wealthy individuals and corporations managed to hide. The administration estimates it could raise nearly $700 billion over the next 10 years.

Some Republicans, who have for years cut back resources for the tax collection agency, argue that the IRS cannot be trusted and that Democrats will use it as a political weapon against conservatives. Those worries became more pronounced last week, after ProPublica published an article based on IRS data containing detailed tax information about the wealthiest Americans.

“The proposal, which is sold under the guise of trying to close the tax gap, is very concerning and pulls almost all taxpayers into a surveillance dragnet,” Sen. Mike Crapo of Idaho, the top Republican on the Senate Finance Committee, told Yellen at a hearing this week. “My concerns are amplified by the egregious apparent leak of private taxpayer information out of the IRS.”

Democrats have been broadly supportive of efforts to empower the IRS to go after wealthy tax evaders. But Sarin’s emergence raised eyebrows among some progressives, including allies of Sen. Elizabeth Warren, D-Mass. Summers’ centrist views have long frustrated left-leaning Democrats, and he and Sarin have criticized wealth taxes, a proposal for reducing inequality that Warren has championed.

As Democratic presidential candidates were debating wealth taxes in 2019, Sarin and Summers wrote an essay for The Washington Post with the headline, “Be very skeptical about how much revenue Elizabeth Warren’s wealth tax could generate.” Last year, in a Brookings Institution report about a pragmatic approach to progressive tax reform, Sarin and Summers described wealth taxes as “extreme” and “radical.”

Sarin’s collaboration with Summers has at times led to outsized scrutiny of her work. The Revolving Door Project, a progressive watchdog group, criticized Sarin last year for co-authoring a paper that examined the merits of allowing people to make early withdrawals from their Social Security benefits to cover expenses during the pandemic. The research appeared to endorse the concept.

“On the right, such plans have been openly advanced as the first step along the path to Social Security privatization,” Jeff Hauser, founder of the Revolving Door, wrote in his newsletter in May 2020. “All the more reason to keep Summers and his cohort out!”

A week later, Sarin distanced herself from the idea in a Bloomberg column and said that Social Security should be strengthened, not weakened.

“Typically, academics love to see their work put into practice,” Sarin wrote, lamenting that her work was being politicized. “For me, this is a painful exception.”

Sarin, through a Treasury spokesperson, declined to be interviewed.

Summers said in an interview that the attacks on Sarin were unfair, noting that she did not agree with him on every policy matter.

“She brings incredibly strong analytical ability, an incredible capacity for work, a capacity for loyalty, wisdom and clear expression,” Summers said. “I can’t believe there is a stronger young economist to have in a position like hers.”

Jason Furman, a Harvard professor who was chairman of the Council of Economic Advisers under former President Barack Obama, said he believed that Sarin’s skepticism of a wealth tax was unrelated to her desire to tax the rich.

“It felt in some ways like a technocratic debate over how much can you raise from the rich through different ways as opposed to a philosophical debate about how progressive should the tax system be,” Furman said, adding that he was not surprised by Sarin’s fast rise at Treasury.

Shrinking the tax gap is a goal that has managed to bridge the divide between progressive and moderate Democrats.

Earlier this year, Rep. Ro Khanna, D-Calif., the deputy whip of the Congressional Progressive Caucus, collaborated with Sarin and Summers when drafting his tax gap legislative proposal. He said that their expertise was valuable despite differences on other policies.

“When those from both ideological wings of the party collaborate and try to find common ground, that builds a sturdier foundation for progressive policy and is a winning formula,” Khanna said. He acknowledged that some of his progressive colleagues had their doubts about working with Summers and Sarin but said it was “worth the momentary criticism.”

Sarin’s rapid rise as a policy guru has not surprised those who have witnessed her desire to tackle ambitious projects. The daughter of a finance professor, Sarin grew up in Northern California, was captain of her varsity basketball team and showed an interest in policy at a young age. At a leadership conference in high school, she helped recruit rapper Snoop Dogg to participate in an event about youth violence.

As a Yale undergraduate, she landed a summer internship in 2010 at the White House National Economic Council, where she met Summers, who was the director at the time. Summers encouraged her to join the doctorate program in economics at Harvard and ultimately hired her as a teaching and research assistant.

“She’s never interested in the math problem just as a math problem; she’s interested in how it drives toward a solution that will contribute to the best policy,” Summers said.

Turning a policy proposal to narrow the tax gap into law will be a challenge of a different magnitude, but her overarching idea of targeting those who don’t pay what they owe has gained widespread support.

Five former Treasury secretaries including Summers, Timothy Geithner, Jacob Lew, Henry Paulson and Robert Rubin wrote in a New York Times opinion essay this month that the Treasury Department’s revenue projections were modest and pointed to another estimate that said the IRS could recover $1.6 trillion over a decade.

What it will take to modernize the IRS and expand its enforcement powers remains a matter of intense debate. John Koskinen, who was the IRS commissioner from 2013 to 2017, suggested that $80 billion in additional funds may be too much for the agency.

“If the audit rate goes back to just normal, you will probably pick up a significant part of that $700 billion,” Koskinen said, noting that the IRS enforcement staff had been substantially depleted over the past decade.

Koskinen said that the biggest initial challenge would be hiring agents who are qualified to track down sophisticated tax evaders. He suggested that doubling the IRS staff, to nearly 150,000, as has been suggested, could be excessive.

Republican lawmakers have expressed doubt about the Biden administration’s projections of how much more money the IRS can bring in. The conservative National Taxpayers Union said this month that the Biden administration’s tax gap plan was “vastly overhyped.”

At an event sponsored by the Urban Institute last week, Sarin acknowledged that White House tax plans entail a web of complementary pieces, and she suggested that the fate of some of them would depend on the political will of Congress.

“I’m no expert on it at all, though,” Sarin said of the political dynamics. “I’m an academic who’s very lucky to be having this opportunity to serve.”

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