The voices of Tax Policy Center's researchers and staff
With the near-certain enactment of the Inflation Reduction Act, the Internal Revenue Service is on track to receive an additional $80 billion in funding over the next decade. Now it’s up to the Administration, the IRS, and Congress not to miss this opportunity to bring the nation’s primary tax collector into the 21st century.
It would help if opponents of the new funding stop their irresponsible claims that armed IRS agents are about to go after middle-income households. And it also would help if the IRS clearly explains how it would use the new money.
The funding is an amazing political achievement. Let’s face it, the IRS isn’t exactly the Prom King of government agencies. And its unpopularity made it easy for Congress to cut its funding in real dollars by over 20 percent since 2010, with its especially reviled enforcement staff taking the hardest hits.
The reality is the $80 billion boost would be spread throughout the agency, with money flowing to enforcement, taxpayer services, operations, and modernization.
About $46 billion—or 57 percent—would be allocated to tax enforcement. That’s spurred the claims that the IRS will deploy as many as 87,000 new agents—“an army of auditors”— who will flyspeck the returns of an additional 700,000 Walmart shoppers. Some conservative commenters have gone even further, warning that those agents will be carrying guns.
Neither the Biden Administration nor congressional Democrats seem especially interested in cracking down on the vast majority of taxpayers who take the standard deduction and whose income is reported on W-2s and 1099s. In a letter this week to IRS Commissioner Charles Rettig, Treasury Secretary Janet Yellen affirmed that the enforcement money would be used to target the very rich, large corporations, and partnerships. Walmart, maybe, but not its customers.
Notwithstanding Yellen’s effort to clean up a mess, with one number and a few words the administration left itself open to the Republicans’ charge.
First, about those 87,000 auditors. Buried in last year’s Treasury report on its compliance agenda was a projection that if the IRS got an additional $80 billion its workforce would increase by 86,852—or nearly double—by 2031.
That’s a really precise number to include in a government report without explaining where it came from. But the hires won’t just be auditors. The report states that the new workforce would include more customer service representatives to help eligible taxpayers claim the child tax credit and the earned income tax credit. And certainly, the IRS will need to hire lots of skilled computer scientists to develop new technologies to improve both enforcement and taxpayer services.
Finally, the agency must replace the thousands of critical workers who left over the past decade.
Treasury opened itself to the Walmart charge in another way, however. The report also said audit rates for taxpayers earning less than $400,000 would not rise relative to recent years. And in this week’s letter, Yellen wrote that the new funds would not be used to increase the share of small businesses or households earning less than $400,000 that are audited relative to historical levels.
But what does Treasury mean by “recent” or by “historical”? A decade of deep budget cuts reduced audit rates for individual income tax returns to 0.4 percent in 2019 from 1.1 percent in 2010. And that was before the pandemic slowed audits. Keeping audit rates at pandemic levels would not be an effective long-term compliance strategy.
The Treasury agenda laid out a broad vision. Yet, despite that very precise number of promised new workers, the Biden Administration has failed to describe in detail how staff and technology would be deployed.
A shout-out to the drafters of the first version of the Inflation Reduction Act, which would have required the IRS to submit a spending plan to Congress within six months, with periodic updates. There was even a $100,000-a-day fine for missing those deadlines.
Reporting requirements are responsible governing. Unfortunately, the mandate had to be dropped, probably because it violated Senate rules for the budget reconciliation bills.
But the IRS and Treasury don’t need to be ordered to explain what they’d do with the additional $80 billion. They should simply answer basic questions such as:
- How will audit selection tools be refined so that compliant taxpayers are not audited?
- Will new auditors have the skills and experience to avoid being outgunned (figuratively, of course) by the army of sophisticated tax advisers hired by the wealthy and big businesses?
- What advancements in technology will help taxpayers?
Even without the congressional mandate, the IRS should submit a detailed spending plan within six months and regularly update it. That’s a small price to pay for $80 billion.
Posts and comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.
Jose Luis Magana, File/AP Photo