President Biden wants more money for the IRS. Here's what the agency would do with it
WASHINGTON – Just days before President Joe Biden conceded that his ambitious package of social and climate change proposals probably won’t pass Congress this year, Senate Republicans escalated their attacks on a key part of the $2 trillion legislation.
They directed their fire at a favorite GOP target: the Internal Revenue Service.
One by one, Republican lawmakers assailed Biden’s plan to pump $80 billion into the tax-collection agency, warning that the infusion of cash would enable the IRS to unleash an army of auditors and regulators eager to pry into the lives of hard-working Americans.
“The IRS is one of the most feared (government) agencies, maybe the most feared agency next to the EPA,” said Sen. Chuck Grassley, R-Iowa.
Concerns over the IRS funding aren’t what derailed Biden’s sweeping Build Back Better legislation. Senate Democrats hoped to pass the bill before Christmas but were forced to delay a vote after West Virginia Sen. Joe Manchin, a conservative Democrat, raised questions about the size and scope of the package.
But the GOP’s focus on the IRS funding ratcheted up criticism of the bill by going after an agency whose tax-collection mission makes it an easy target – one that defenders say has been brought to the brink of collapse by years of budget cuts pushed by Republicans.
“If and when it does collapse, it’s not the fault of the agency,” said John Koskinen, who served four years as IRS commissioner. “It’s not the fault of the managers. It’s not the fault of the employees. It’s the responsibility of the Republicans, who for 12 years have delighted in underfunding the agency and thinking of reasons as to why that’s a good idea.”
Koskinen and others say Republicans are misleading the public about what the cash infusion would empower the IRS to do. The goal, they insist, is to target big corporations and rich people who aren’t paying their taxes, not middle-class Americans.
What’s more, staffing shortages and other problems rooted in years of funding cuts will continue to plague the IRS if Biden’s bill is permanently shelved and Congress refuses to give more money to the agency.
“To folks who are big enforcement advocates, this might be their big opportunity” to turn the IRS around, said Garrett Watson, senior policy analyst at the Tax Foundation, a Washington-based think tank.
“If this Build Back Better opportunity passes us by, it might be a long time before they get more robust enforcement resources in the door,” he said.
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A weaker IRS
By just about any measure, the IRS is weaker than it was a decade ago.
Though a letter or a phone call from the agency can still send a jolt of fear through most Americans, deep budget cuts that started around 2010 and continued over the following decade have drained the agency of the resources and the staffing it needs to enforce the nation’s tax laws.
Republicans looking to undercut Barack Obama’s Affordable Care Act slashed funding for the IRS, which was tasked with carrying out the tax provisions in the healthcare law.
The budget cuts escalated with the rise of the Tea Party movement and allegations that the IRS was maliciously targeting conservative political groups. An inspector general’s report released in 2017 concluded the IRS also subjected left-leaning political groups to extra scrutiny, undercutting part of the GOP’s rationale for the punitive cuts.
Regardless, the IRS’s overall budget has shrunk by more than 18% since 2010, when adjusted for inflation. Its enforcement budget has fallen by 15% over the same period, resulting in a sharp decline in the agency’s workforce.
The enforcement staff alone has shed 15,000 employees over the past decade – from 50,400 in 2010 to 35,000 in 2021. The heaviest losses have been among revenue officers who collect taxes (a 50% decrease) and revenue agents who audit complex returns (a 35% decrease), the Treasury Department said in a report last May.
Another striking statistic from that report: The IRS has fewer auditors today than at any time since World War II.
As the IRS workforce has thinned, its workload has grown heavier.
Individual tax filings have risen by nearly 10 million a year since 2010, according to an analysis in July by the Center on Budget and Policy Priorities, a Washington-based think tank.
At the same time, the agency has been designated with implementing multiple revisions to the tax code, including changes mandated by the Affordable Care Act and sweeping tax reforms passed by Republicans in 2017. In the past two years alone, the IRS had to process three rounds of stimulus checks that Congress directed to be sent to millions of Americans during the coronavirus pandemic.
The staff reductions and strain on other resources have diminished the agency’s capacity to conduct taxpayer audits. The IRS’s overall audit rate has fallen by 58% since 2010, the budget policy center’s analysis said. Audits of large corporations over the same period have fallen 54%. Audits of millionaires have plummeted 71%.
The result: The tax gap – the difference between the amount of taxes owed and what is actually collected – has jumped considerably, from $441 billion per year between 2011 and 2013 to $584 billion in 2019. Over the next decade, it’s estimated to hit $7 trillion.
“There’s a pretty clear connection between the funding (cuts) and the drop in tax enforcement,” said Kyle Pomerleau, a tax policy expert at the American Enterprise Institute, which conducts research on economic and social policy.
The IRS’s outreach to taxpayers has suffered, too. Just one in four phone calls from taxpayers to the agency are answered, and those who do get through often do so after prolonged delays.
“If you don't have enough money to hire enough people to answer the phones, people aren't going to get through,” said Koskinen, who headed the agency under both Obama and Donald Trump.
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87,000 new workers
Biden’s plan to give the IRS $80 billion could ease some of those problems. With that money, the agency could hire nearly 87,000 workers over the next decade, the Treasury Department said.
The department didn’t break down where the workers would be placed. But Biden’s proposal specifies that roughly half of the funding would be targeted specifically for the agency to ramp up its enforcement activities.
That would reinforce the agency’s ability to go after wealthy tax cheats, shrink the tax gap and provide the government with tax revenue that now goes uncollected.
The Biden administration projects increased enforcement could bring in as much as $400 billion over the next 10 years – revenue that Biden is counting on to help pay for his Build Back Better plan. The nonpartisan Congressional Budget Office put the figure at closer to $127 billion, a significant amount but less than half of what the Biden administration expects.
Countering Republican arguments that the additional resources would enable the IRS to unfairly target small businesses and middle-class Americans, the administration insists that audit rates won’t rise for people earning less than $400,000 a year and, in fact, will likely decline as the IRS focuses more on catching rich tax evaders.
Any suggestion that the funding would be used “to target enforcement efforts on ordinary Americans is wholly misguided,” Treasury Secretary Janet Yellen wrote in a letter to Congress in September.
Roughly $32 billion of the $80 billion cash infusion Biden is pushing would be used for the development of information technology and other services that could enhance the IRS’s enforcement prowess.
The IRS’s computer systems are among the oldest in the federal government. Two of its dataset systems – one master file that holds the record of all taxpayers and another that contains records of business tax accounts – date back to the 1960s.
Republicans argue that modernizing those systems would be a cheaper and better use of government funding than hiring 87,000 additional workers. But Koskinen said that while new technology is badly needed and would make the agency more effective, it wouldn’t eliminate the demand for additional staff.
“No matter how good your technology is, somebody has got to talk to taxpayers, somebody has to respond to the notices sent out, somebody has to go out and audit,” he said.
Michael Collins covers the White House. Follow him on Twitter @mcollinsNEWS.
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