By: Michael Chang
In the second week of August 2022, the Democrats of the United States Senate hope to pass the Inflation Reduction Act to grant the Internal Revenue Service (IRS) about $80 billion in funding to promote auditing fairness for American taxpayers.
If passed, this proposed funding for the IRS will achieve the government’s liberal objectives of strengthening tax enforcement on high-income earners and relieving low-income taxpayers of unsettling tax-related audits. Numerically, approaching a total of $80 billion, the IRS will receive $45.6 billion for tax enforcement, $25.3 billion for operations, $4.8 billion for the modernization of business systems, and $3.2 billion for taxpayer services. Also, some profit from this funding will pay for the largest-ever U.S. investment in clean energy technology.
For the past few years, the IRS has been underfunded and struggling. The agency still uses COBOL, a programming language released in 1960, to program some of its central computing systems. Additionally, the IRS currently has 17 percent fewer employees than in 2010 and a 12 percent decrease in congressional appropriations in the past 12 years. According to Douglas Holtz-Eakin, the conservative president of the think tank American Action Forum, “Part of [the Inflation Reduction Act] is not expecting miraculous rates of return. It’s about stopping the decline [of IRS employees].”
Currently, IRS audits primarily involve taxpayers with incomes under $75,000. The Senate Democrats and the IRS want to pass the Inflation Reduction Act because the IRS can profit more using the funding to investigate and audit suspicious tax returns of high-income populations rather than the taxes of lower-income communities. For the IRS, the projected profit from the increased tax enforcement on high-income earners is over four times the funding for increased tax enforcement.
On Thursday, August 4, 2022, Charles Rettig, the IRS Commissioner, wrote to lawmakers that the IRS is committed to increasing tax enforcement “in areas of challenge for the agency — large corporate and global high-net-worth taxpayers. These resources are not about increasing audit scrutiny on small businesses or middle-income Americans.” Rettig’s words show the agency’s objectives if the Senate grants the funding.
On the contrary, Holtz-Eakin believes, “[The act is] not an effective place to … raise revenue.” Reports by experts suggesting that people of higher income tax brackets have increased access to accountants and lawyers who can evade the IRS’ tax enforcement strategies support his assertion. This concern might significantly decrease the profit from the proposed funding.
As the Senate votes on this bill, the pressing question is whether the projected profit from increased IRS tax enforcement becomes a reality.
Sources:
https://s3.amazonaws.com/appforest_uf/f1659882475536x642376649871913200/Democrats%E2%80%99%20Inflation%20Reduction%20Act%20wager%20on%20the%20Internal%20Revenue%20Service%20-%20The%20Washington%20Post.pdf