Business

Larry Summers says more billionaires will help the economy

Larry Summers has a soft spot for billionaires.

Well, that might be a bit strong. But in a recent wide-ranging conversation with Luck on inflation, the economy, and yes, billionaires, Summers says we need more than less.

Indeed, he thinks it’s important to maintain the freelance entrepreneurial culture that has spawned so many great billionaires because they’re also great job creators. But he also believes they are being under-taxed. “If we have more people like Jeff Bezos, Bill Gates and Steve Jobs, who have built spectacular businesses and created great fortunes… then that will be good for America,” he said. He also supported “a series of tax changes that could cost them more and complicate any attempt to form intergenerational dynasties for the benefit of their great-grandchildren.” . The ease with which the rich can transfer their wealth to their heirs is a precondition for the American ideal of equal opportunity. “

Taxing the super-rich more isn’t the only change Summers wants to see in the IRS — he wants to expand its reach and has the research to show why it would be more. is to pay for itself.

Summers said that in 2019, he and Harvard law professor Natasha Sarin began working on refunds if the United States increased funding for the IRS to significantly expand tax audits and enforcement. “We predicted that there might be a Democratic president looking to strengthen the tax system without changing the tax rules,” Summers recalls.

In their paper published in July 2020, Summers and Sarin cited an estimate that $7.5 trillion or 15% of total federal tax revenue will not be collected over the next decade. Reason: The IRS is underfunded. Over the past decade, the agency has reduced its inflation-adjusted deductions by 15% and reduced its workforce by a fifth. Only half of agents work for as high a salary as in 2011 or 2012. It operates an outdated software system developed in the 1960s that ranks as the oldest in the federal government.

The two authors find that the IRS can generate many dollars in additional revenue for every dollar spent on enforcement. They estimate that $82 billion in new funding over ten years will restore spending to their share of 2011 GDP — and generate ten times that amount in revenue. Much of those revenues will come from “deterrence,” the realization that as taxpayers see more audits and increased enforcement, they will deploy less risky strategies for taxation.

The research even found its way into the recently passed Inflation Reduction Act (Sarin joined the Treasury as Assistant Secretary of State for Economic Policy). In the bill, the CBO found that an additional $80 billion set aside for the IRSCK would generate a net profit between 2032 and 2032 of $124 trillion, offsetting a quarter of the bill’s costs. And the CBO analysis ruled out any possible benefit from deterrence, which came up a lot in the Summers-Sarin paper. Thus, Summers and Sarin’s unusual idea served as the mainstay of what it was designed for, creating a deficit-reducing victory for President Biden.

For the inside story of how Summers played a pivotal role behind the scenes in the fight against inflation, read the full story. here.

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