What will the IRS do with an additional $80B in funding?
(NewsNation) — The Internal Revenue Service’s budget is set to increase by nearly $80 billion over the next decade as part of Senate Democrats’ new climate, health and tax plan that President Joe Biden signed Tuesday.
The majority of that funding, about $45.6 billion, will go toward tax enforcement efforts. This will mostly be in the form of additional staff who will be focused on auditing the wealthiest Americans, according to Democratic lawmakers.
Under the new package, estimates suggest the IRS could hire as many as 87,000 employees over the next 10 years, but that total is not limited to auditors.
Republican lawmakers were quick to criticize the plan, claiming that an increase in IRS agents focused on enforcement will lead to more burdensome tax audits for middle-class Americans.
But the Biden administration has pushed back on that narrative, insisting that those who make under $400,000 a year won’t be more likely to face an audit than in recent years. Treasury Secretary Janet Yellen, whose department oversees the IRS, echoed that assurance last week.
“The IRS has essentially been decimated over the last decade and it’s to the detriment of regular taxpayers and to the benefit of people who are cheating the system,” said Seth Hanlon, a senior fellow and tax expert at the Center for American Progress, a liberal think tank.
Hanlon believes the new funding will help close the tax gap — the average annual value of unpaid federal taxes — and modernize an agency that has become known for its terrible customer service.
In tax year 2019, just under 84% of taxes owed were actually paid or collected, resulting in nearly $554 billion in unpaid taxes, according to the Treasury Department.
The Congressional Budget Office estimates the renewed emphasis on enforcement will bring in an additional $204 billion in revenue, a net savings of $124 billion. Other estimates suggest the real revenue impact may be closer to $400 billion.
The new package is expected to plug holes in an agency that has seen its budget decline more than 15% over the past 10 years, even as the number of people filing taxes has increased.
What are the 87,000 new hires for?
About 80,000 people work for the IRS today. Add another 87,000 employees and that means the IRS is set to double its staff over the next 10 years, right? Not quite.
Enforcement staffing has fallen by 30% since 2010 and the agency has lost approximately 50,000 agents over the past five years due to attrition, according to the IRS.
For that reason, many of the new hires will fill existing vacant positions. In fact, the IRS estimates that it will need to hire an additional 52,000 employees over the next six years just to maintain current staffing levels.
Along with enforcement staff, the IRS plans to hire customer service representatives to help taxpayers navigate the system and IT professionals to update outdated computer systems.
The agency hasn’t said specifically how many people it intends to hire with the new funding. The 87,000 number comes from a Treasury Department estimate in a report from May 2021.
Audits of the wealthy have declined in recent years
Audit rates for all income levels have dropped since 2010, but data shows those declines are especially pronounced among the wealthy.
The audit rate for Americans making more than $5 million a year fell from 16% in 2010 to just over 2% in 2019, according to a recent report from the Government Accountability Office (GAO).
That decline reflects a lack of resources, said Hanlon, who noted that auditing those with higher earnings tends to be far more complex.
“These audits are extremely technical and complicated and the IRS — especially with a lot of retirements of their most experienced personnel — badly lacks the ability to thoroughly audit wealthy people and large corporations,” he said.
The GAO’s analysis found that audits for those making $5 million or more have become increasingly time-consuming over the past decade.
The average number of hours spent per audit for those making $5 million or more went from 20 hours in 2010 to nearly 60 hours in 2021.
Others more skeptical
Other experts predict those making less than $400,000 will have to face more audits in order to meet the revenue projections, casting doubt on the Biden administration’s promises.
“Returning to 2010 audit rates for all individuals making over $400,000 would generate only 28%, or $9.9 billion, out of the estimated $35.3 billion in new IRS enforcement revenues in 2031,” wrote Rachel Greszler, a senior research fellow at the Heritage Foundation, a conservative think tank.
The same GAO report that found a declining audit rate for wealthy Americans over the past decade also determined that between 2010 and 2021, “the majority of the total amount of recommended additional tax came from audits of taxpayers with incomes below $200,000.”
It remains to be seen whether the IRS can achieve the forecasted revenue gains without increasing audit rates among those who make less than $400,000.
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