Charles P. Rettig, Commissioner of the Internal Revenue Service, testifies during a Senate Finance Committee hearing on the IRS Budget for Fiscal Year 2022 in the Dirksen Senate Office Building in Washington, DC, June 8, 2021.
Tom Williams | Pool | Reuters
Senate Democrats passed their climate, health and tax package on Sunday, including nearly $80 billion in funding for the IRS.
Part of President Joe Biden’s agenda, the Inflation Reduction Act allocates $79.6 billion to the agency over the next 10 years. More than half of the money is earmarked for enforcement, with the IRS looking to collect more from corporate and wealthy tax evaders.
The remainder of the funding is for operations, taxpayer services, technology, development of a direct free e-file system and others. Together, these improvements are projected to bring in $203.7 billion in revenue from 2022 to 2031, according to the latest Congressional Budget Office estimates.
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IRS audits have declined over the past decade, with the biggest drop among the wealthy, according to a May 2022 report by the Government Accountability Office.
The audit rate for Americans earning $5 million or more fell to about 2 percent in 2019, down from 16 percent in 2010, the report found. The agency said it is working to improve those numbers.
However, if the Inflation Reduction Act is approved by the House and signed into law, it will take time to phase in the added IRS funding, explained Garrett Watson, senior policy analyst at the Tax Foundation. The Congressional Budget Office estimates only about $3 billion of the $203.7 billion in 2023 revenue.
“We didn’t get to this state with the agency overnight, and it’s going to take more than overnight to get going in the right direction,” he said.
IRS: We’re not going to tighten ‘audit scrutiny’ on the middle class
While advocates applaud the increased IRS budget, opponents argue that increased enforcement could affect more than wealthy Americans, breaking Biden’s $400,000 pledge.
“My colleagues argue that this massive increase in funding will allow the IRS to go after millionaires, billionaires, and so-called wealthy ‘tax cheats,’ but the reality is that a significant portion of the IRS’s inflated funding will come from taxpayers with incomes below $400,000,” Sen. Mike Crapo, R-Idaho, the ranking member of the Senate Finance Committee, said in a statement.
IRS Commissioner Charles Rettig said the $80 billion in funding would not increase audits of households making less than $400,000 a year.
“The resources in the reconciliation package will return us to historical norms in areas of challenge for the agency — large corporate and global high-net-worth taxpayers,” he wrote in a letter to the Senate.
“These resources are absolutely not about increasing audit scrutiny of small businesses or middle-income Americans,” he added.
More than two-thirds of registered voters support increasing the IRS budget to strengthen tax enforcement for high-income taxpayers, according to a 2021 University of Maryland poll.
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