The bill, known as the Inflation Reduction Act, would allocate $ 80 billion to strengthen the IRS, in line with liberals’ long-term goals to strengthen tax collection and enforcement of corporate and high-income taxes. while relieving low-income taxpayers from cumbersome and frightening audits. Part of the additional revenue would go to pay for the largest ever US investment in clean energy technology.
The idea is that the government could bring in more money by examining corporate and high-income returns than it does by prosecuting low- or middle-income taxpayers who make mistakes in their returns or pay less in taxes for small amounts. The IRS in recent years has become more dependent on these types of audits because they are relatively inexpensive – they are automated and preserve the limited resources of the agency’s staff. But mostly they also fall on taxpayers who cannot afford to react by spending many hours on the phone with the revenue agency or hiring lawyers.
As a result, the IRS’s prolific enforcement capabilities – which generate more than $ 10 in revenue on average for every $ 1 spent on audits – are often trained on the most economically vulnerable taxpayers.
More than half of the agency’s audits in 2021 were aimed at taxpayers with incomes below $ 75,000, according to data from the IRS. More than 4 out of 10 audits targeted beneficiaries of the earned income tax credit, one of the country’s main anti-poverty measures.
Congress and the White House, when led by Republicans, have starved the resources of the IRS for so long, experts say, that even with an inflow of $ 80 billion in new funding, the agency’s ability to transform is anything but insured.
Some of its core computers still run on a programming language dating back to the 1960s, called COBOL, the IRS has repeatedly complained to policymakers. The program is so old that college computer science courses rarely teach it anymore, forcing the IRS to spend a lot to train new hires in outdated systems.
The IRS has 60 discrete case management systems that do not communicate with each other.
His staffing levels have declined 17 percent since 2010, including a 30 percent drop in law enforcement employees, as his budget has flattened: adjusted for inflation, his annual congressional budget has fallen by 12 percent over the same time frame, to $ 12.6 billion this year.
“Part of that is not expecting miraculous rates of return. It’s about stopping the decline, ”said Douglas Holtz-Eakin, president of the conservative think tank American Action Fund and former director of the Congressional Budget Office.
Republican lawmakers have rejected the legislation – which would be a distinctive result of President Biden’s first term – arguing that a reinvigorated IRS would use its new resources to prosecute middle class and poor Americans.
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Speaking at a press conference Wednesday, Senator John Barrasso (R-Wyo.), The head of the Republican Senate Conference, said the proposed spending “would put the IRS on steroids” and totaled about “one million per IRS agent. “
“You don’t need so many IRS agents to go after some people they say are very, very rich,” Barrasso said, adding that it would affect “American families, farmers and small businesses, that’s who will bear the burden of this legislation.”
“This is an agency that only managed to answer one in 50 phone calls during the 2021 fiscal season,” Senator John Thune (RSD) said in the Senate courtroom Tuesday. “Yet 4 percent of the $ 80 billion will go to taxpayer services; 57 percent goes to enforcement, so the IRS can spend more time harassing taxpayers across the country. “
But experts say it’s a condition largely driven by GOP policies, which has prompted the IRS to more scrutinize poorer taxpayers by depriving the agency of the resources it would have used to pursue richer goals that protect potentially far more sums. high.
On Thursday, IRS Commissioner Charles Rettig wrote to lawmakers that his agency has pledged to strengthen enforcement “in the challenge areas for the agency: large corporations and high net worth global taxpayers.” He added, “These resources are absolutely not about increasing audit control over small businesses or middle-income Americans.”
Rettig was appointed by President Donald Trump in 2018 after a career as a tax attorney in Beverly Hills, California. His term expires in November, and the Biden administration has explored other possible candidates for the role, people familiar with the matter told The Washington. Post last month, speaking on condition of anonymity to discuss private interviews.
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Undoubtedly, the proposed funding will help the IRS raise more revenue. An analysis conducted by the Congressional Budget Office, the legislature’s non-party accountant, found that the IRS provisions would reduce the federal deficit by $ 203 billion, far more than the Democrats expected when they introduced the bill.
Of the $ 80 billion allocated to the revenue agency, $ 45.6 billion will go to the application, marking an expected return on investment of $ 4.50 in revenue for every dollar spent on the application.
Experts say the figure, which is much lower than what the IRS typically brings, has two potential explanations.
The first is that it may simply be a conservative estimate; with resources to hire hundreds, if not thousands, of employees, the agency could significantly exceed its revenue projections by both pursuing more tax fraud and improving taxpayer services to make it easier for Americans to voluntarily comply with the tax code.
“If you are able to engage a group of people who are really thinking ahead … if they are able to use the technology that allows them to carry some of the data they already have, that would have a compliance effect and help them go. forward, “said Nina Olson, who was advocate for national taxpayers, the IRS’s internal consumer rights control body, from 2001 to 2019.” That would help, and I hope that’s what they are planning to do. ” .
The second explanation, experts say, is that cracking down on higher-income taxpayers results in diminishing returns, even if the amount of money involved is potentially much greater. The wealthy who file complex statements have access to accountants and attorneys who can fight the IRS enforcement mechanisms, or at least extend the process over the years.
Even when the IRS is able to collect from those types of taxpayers, it will have spent a lot of resources in the process.
“It’s not an effective place to go to increase revenue,” Holtz-Eakin said, although having a controlling presence among the wealthy is important to maintaining equity.
Tony Romm contributed to this report.