(Updates with Manchin comments on spending plan)

By David Lawder

PHILADELPHIA, Nov 1 (Reuters) - The U.S. government aims to raise $400 billion in new revenue over a decade by making rich Americans respect the Internal Revenue Service again as part of President Joe Biden's slimmed-down, $1.75 billion social and climate spending plan.

Increased IRS enforcement to collect unpaid taxes makes up the largest source of revenue in the bill that congressional Democrats are trying to finalize this week. Deputy Treasury Secretary Wally Adeyemo told Reuters that a revived fear of audits among wealthy Americans would deter tax avoidance.

While many of Biden's original investment priorities https://www.reuters.com/world/us/main-battles-ahead-us-democrats-35-trillion-social-spending-bill-2021-09-15 have been shrunk or cut from the bill, plans to invest $80 billion in the IRS over a decade survived. Approval would allow for the hiring of thousands of enforcement staff and replacing antiquated computer systems in coming years.

Hiring agents, updating systems and pursuing sophisticated audit cases will take time, Adeyemo said in an interview, adding that he believes the stepped-up activity will make wealthy individuals think twice about hiding income to avoid taxes.

"When you are focusing on audits and people see that audits are happening - especially amongst people who are situated similar to them - you have better compliance," Adeyemo said during a visit to Philadelphia to promote the bill's increased Child Tax Credit benefits.

"When they see more cops on the beat looking at tax returns, what people will decide is that it's better to pay than to pay the penalty in the end."

After years of budget cuts and underinvestment, largely under Republican-controlled Congresses, the IRS has 17,000 fewer enforcement employees than a decade ago. The audit rate https://www.irs.gov/pub/irs-pdf/p5382.pdf?mod=article_inline for individuals fell to 0.4% in fiscal 2019, half the 0.8% rate in 2015 and far below the 1.98% rate in 1977 https://www.irs.gov/pub/irs-soi/04dubin.pdf.

IRS Commissioner Charles Rettig, who was appointed by the Trump administration, told senators https://www.reuters.com/article/us-usa-treasury-irs/irs-chief-says-1-trillion-in-taxes-goes-uncollected-every-year-idUSKBN2C0255 in April that the agency is "outgunned" by increasingly sophisticated tax avoidance schemes that underreport business income and capital gains, leaving a "tax gap" between owed and collected taxes as high as $1 trillion a year.