The bill, known as the Reducing Inflation Act, would spend $80 billion on strengthening the IRS, consistent with the Liberals’ long-term goals of strengthening the collection and enforcement of taxes on high-income corporations and individuals, while relieving low-income taxpayers from cumbersome and daunting audits. A portion of the additional revenue would go to pay for the largest investment the United States has ever made in clean energy technology.
The idea is that the government could make more money by looking at business and high-income returns than by prosecuting low- and middle-income taxpayers who make mistakes on their returns or underpay their taxes by small amounts. . In recent years, the IRS has become more dependent on these types of audits because they are relatively inexpensive: they are automated and save the agency’s limited human resources. But they also fall primarily on taxpayers who cannot afford to fight back by spending many hours on the phone with the tax agency or hiring lawyers.
The result is that the IRS’ prolific enforcement capabilities — which average more than $10 in revenue for every dollar spent on audits — are often trained on the most economically vulnerable taxpayers.
More than half of the agency’s audits in 2021 targeted taxpayers with incomes below $75,000, according to IRS data. More than 4 in 10 of its audits targeted recipients of the working income tax credit, one of the country’s main anti-poverty measures.
Congress and the White House, when run by Republicans, starved the IRS of resources for so long, experts say, that even with an influx of $80 billion in new funding, the ability of the agency to transform is far from assured.
Some of its main computers still run on a programming language dating back to the 1960s called COBOL, the IRS has repeatedly lamented to policymakers. The program is so old that college computer science courses rarely teach it, forcing the IRS to spend heavily training new recruits in outdated systems.
The IRS has 60 discrete case management systems that do not communicate with each other.
Its workforce has fallen 17% since 2010, including a 30% drop in law enforcement employees, as its budget has remained stable: adjusted for inflation, its annual appropriation from Congress has shrunk. 12% over the same period, to $12.6 billion this year.
“Part of it is not expecting miraculous rates of return. It’s about arresting the decline,” said Douglas Holtz-Eakin, chairman of the conservative think tank American Action Fund and former director of the Congressional Budget. Office.
Republican lawmakers have criticized the legislation – which would be a landmark achievement of President Biden’s first term – saying a reinvigorated IRS would use its new resources to go after poor and middle-class Americans.
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Speaking at a press conference Wednesday, Sen. John Barrasso (R-Wyo.), the leader of the Senate Republican Conference, said the proposed spending would “put the IRS on steroids” and raise in total to about “one million per IRS agent”. .”
“You don’t need so many IRS people to go after a few people who they say are very, very wealthy,” Barrasso said, adding that it would hit “families, farmers, and small businesses.” Americans is who will bear the burden of this legislation.
“This is an agency that only managed to answer about one in 50 phone calls during the 2021 tax season,” Sen. John Thune (RS.D.) said in the Senate on Tuesday. “Yet 4% of the $80 billion goes to taxpayer services; 57% goes to enforcement, so the IRS can spend more time harassing taxpayers across the country.
But experts say it’s a condition brought about in large part by GOP policies, which led the IRS to more audits of the poorest taxpayers by depriving the agency of the resources it would have needed to s to attack wealthier targets that house potentially much larger sums.
On Thursday, IRS Commissioner Charles Rettig wrote to lawmakers that his agency has pledged to strengthen enforcement “in areas that are difficult for the agency – the big corporations and wealthy taxpayers of the world.” He added, “These resources are absolutely not intended to increase audit control over small businesses or middle-income Americans.”
Rettig was nominated 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 been exploring other possible candidates for the job, people familiar with the matter told Washington. Posted last month, speaking on condition of anonymity to discuss private discussions.
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Undoubtedly, the proposed funding will help the IRS collect more revenue. An analysis by the Congressional Budget Office, the Legislature’s nonpartisan accountant, found that the IRS provisions would cut the federal deficit by $203 billion, far more than Democrats expected when they introduced the bill.
Of the total $80 billion allocation to the tax agency, $45.6 billion will go to enforcement, representing an expected ROI of $4.50 in revenue for every $1 spent on the application.
Experts say that figure — which is far lower than what the IRS typically provides — has two potential explanations.
The first is that it might just be a conservative estimate; with resources to hire hundreds, if not thousands, of staff, the agency could significantly exceed its revenue projections both by prosecuting more tax cheats and improving taxpayer services to enable Americans to voluntarily comply with the Tax Code.
“If you’re able to bring in a group of people who are really thinking ahead…if they’re able to bring in the technology that allows them to bring in some of the data that they already have, that would have a compliance effect and help them move forward,” said Nina Olson, who served as National Taxpayer Advocate, the IRS’ internal consumer rights watchdog, from 2001 to 2019. would help, and I hope that’s what they plan to do.
Experts say the second explanation is that cracking down on high-income taxpayers comes with diminishing returns, even though the amount of money involved is potentially much larger. Wealthy people who file complex returns have access to accountants and attorneys who can fight the IRS’ enforcement mechanisms, or at least prolong the process over the years.
Even when the IRS is able to collect from these types of taxpayers, it will have spent a lot of resources in the process.
“It’s not an efficient place to raise income,” Holtz-Eakin said, although having a police presence among the wealthy is important to maintain fairness.
Tony Romm contributed to this report.