Although the Inflation Reduction Act is hugely popular, some politicians and pundits are trying to generate hysteria over one thing: IRS funding. All of the misrepresentation distracts us from two important things: how much increased funding is needed to reverse the long-standing underfunding of this essential government agency, and how this funding will directly help average Americans get jobs. money owed to them while cracking down on billionaire tax cheats. . Bonus: it’s ok generate about 200 billion dollars that we can reinvest in green energy, health care and a cleaner climate.
Over the past decade, budget cuts have reduced IRS staff by 20 percent, leaving the agency with fewer listeners than at any time since World War II. This means that they have been fundamentally unable to do even the bulk of their work, which involves the important task of fundraising for the whole of government. Unable to process tax returns efficiently, unable to answer calls from confused taxpayers and, above all, unable to get the money owed by the extremely wealthy, who have ways around the IRS.
Despite what Republican lawmakers would have you believe, most middle-class and poor people pay their taxes, and when there are mistakes, they’re small compared to aggressive elite tax evasion. Most Americans have income withheld from every paycheck, and they have W-2 forms that their employer fills out and submits to the Social Security Administration and the IRS. They don’t have convoluted offshore accounts and licensor trusts to invite IRS examiners to screen.
This is not so true for the rich: a recent study concluded that more than one-third of all unpaid federal income taxes are attributable to the top 1%. But the wealthy are simply harder to audit. People who own multiple businesses and have different types of investments that aren’t automatically reported to the IRS have a lot more opportunities to hide their income.
Republican cuts to the IRS budget are the reason the agency has done fewer and fewer difficult audits — audits of wealthy people and big corporations — and focused more on easier audits , which are audits of poor and middle-income people. Of 2010 to 2018, audit rates for those with incomes between $1 million and $5 million fell by 67%. Audits of low-income workers who receive the earned income tax credit have only dropped by 40%.
Funding the Cut Inflation Act would reverse this dynamic, allowing the IRS to rehire specialists who know how to tackle the complex and convoluted schemes used by the very wealthy. Congressional Republicans, it seems, would prefer the IRS to focus on auditing EITC beneficiaries.
Because this bill is so popular, Republican politicians have been making some pretty ridiculous statements over the past few days. So just to be clear: audits will be focused on wealthy tax evaders and corporate tax evaders, routine audits are done by mail (not by armed officers as Senator Chuck Grassley (R-Iowa) hilariously claims, the 87,000 new IRS employees are to be added over a decade (meaning many will simply replace people retiring), and most Americans want billionaires to obey tax laws, just like most Americans do.
In addition to increased enforcement, the new IRS funding would improve the agency’s technology and efficiency, helping average Americans get their tax refunds faster. It’s clear that underfunding is a problem: In the past three years alone, the number of unprocessed tax returns has nearly doubled, according to the Congressional Research Service. At the same time, the number of taxpayer calls that IRS agents were able to answer dropped to less than 1 in 5 calls. Ouch.
A recent Washington Post article describes how the IRS cafeteria became filled with unprocessed paper tax returns that IRS staff were forced to type by hand into computers running 1960s COBOL – a language that Today’s coders don’t even know – because the agency wasn’t given the funding to invest in contemporary technology. And when the IRS can’t catch the wealthy tax cheats, who pays the price? All of us who follow the rules and pay what we owe. We pay for their tax evasion.
A well-funded IRS is an IRS that goes after the good people — the very rich who don’t pay their fair share of taxes — and protects those of us who do.
Jon Whiten is a tax policy expert at the Institute on Taxation and Economic Policy