The Schumer-Manchin tax bill passed the Senate as part of the Inflation Reduction Act on Sunday. According to legislative documents, the bill will raise taxes and boost the IRS by an estimated $80 billion.
The bill had been opposed by a number of Republican leaders before it was passed. However, Vice President Kamala Harris cast the tie-breaking vote and the bill now heads to the House.
Last week, The Republican National Committee claimed that the increased budget and its subsequent recruitment of nearly 87,000 IRS agents would lead to “poorer” Americans and small businesses being targeted with audits.
What will the budget increase be used for?
The IRS says the $80 billion boost will go towards operational upgrades, customer service updates, systems modernization, and “increased enforcement.” According to IRS Commissioner, Charles P. Rettig, the IRS will not increase the number of audits being performed on households earning less than $400,000.
“These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans,” Rettig wrote in a letter to Congress. “As we have been planning, our investment of these enforcement resources is designed around Treasury’s directive that audit rates will not rise relative to recent years for households making under $400,000.”
IRS size has historically fluctuated
According to data from the tax-collecting agency, the size of the IRS’ workforce has fluctuated throughout history. Although the size of the IRS has been on an upward incline since the 1960s, expenses have gotten larger and budgets have gotten smaller.
The IRS workforce first broke 100,000 employees in 1987 when operating costs were estimated to be around $4.4 billion, according to data from the IRS. The size of the IRS hadn’t dipped under 100,000 again until almost 24 years later in 2011 when budget cuts led to a depleted workforce.
Since 2010, Congress has reduced the agency’s budget by nearly 20%, according to the IRS’ Taxpayer Advocate Service. Last year, the IRS employed almost 79,000 people but has seen an increase in operating costs, now totaling upwards of $13 billion.
Earlier this year, the agency hired 10,000 more agents as reinforcement in order to assist in clearing a backlog of more than 20 million unprocessed tax returns, the Associated Press reported.
Congressional Budget Office analysis from 2021 and IRS debunk claims
The mass hiring went largely unopposed by Republican lawmakers. Now, the RNC claims that putting the IRS “on steroids” will lead to unfair auditing practices.
“The (Congressional Budget Office) found that increased funding for IRS enforcement leads to ‘higher audit rates’ for all taxpayers, including those who ultimately do ‘not owe any additional taxes,’” the RNC states on their website.
The 2021 analysis from the Congressional Budget Office was not included with full context on the RNC site. While the CBO did estimate that audit rates would rise for all taxpayers, it also concluded that high-income taxpayers would ultimately bear the brunt of IRS enforcement.
“The proposal, by contrast, would return audit rates to the levels of about 10 years ago; the rate would rise for all taxpayers, but higher-income taxpayers would face the largest increase,” the CBO stated.
“In addition, the Administration’s policies would focus additional IRS resources on enforcement activity aimed at high-wealth taxpayers, large corporations, and partnerships. CBO estimates that if the proposals were enacted, tax compliance would be improved, and more households would meet their obligation under the law.”
Additionally, Rettig suggested last week that the RNC’s claims are unsubstantiated and insisted that strengthening the IRS will lead to more consistent tax law compliance from high-income taxpayers.
“Large corporate and high-net-worth taxpayers often engage teams of sophisticated representatives pursuing unsettled or sometimes questionable interpretations of tax law,” Rettig stated in his letter to Congress.
“The integrity and fairness of our tax administrative system relies upon the ability of our agency to maintain a strong, visible, robust enforcement presence directed to these and other similarly situated non-compliant taxpayers.”
