The Inflation Reduction Act and tax returns
U.S. Senate Democrats passed their omnibus Inflation Reduction Act last Sunday 51 to 50, with Vice President Kamala Harris casting the tie-breaking vote. They did so under so-called “reconciliation” rules, which require only a simple majority to pass bills related to appropriations, rather than the usual filibuster-blocking 60-vote margin.
The bill then went to the House, where Democrats hold a majority. It will likely pass there as well and then go to President Biden for his signature. The measure contains a number of provisions dear to the hearts of Democrats and many moderates: empowering Medicare to negotiate prices for several key drugs, capping Medicare recipients’ out-of-pocket costs at $2,000 a year, climate control incentives, extension of federal health care subsidies, a 15 percent minimum tax for most corporations whose profits exceed $1 billion a year, and other long-sought goodies.
By raising more money than the act will spend over a 10-year period, it will also enable the government to pay down some of the national debt by several hundred billion dollars. That hasn’t happened for the past 25 years.
A section of the act that particularly irritates Senate Republicans – and many of their well-heeled donors – increases the funding of the Internal Revenue Service (IRS) by $80 billion over the next 10 years. A little over half of that increase will go to hire thousands of new agents to audit tax returns.
Florida Senator Rick Scott, a Republican, appeared on CBS-TV’s “Face the Nation” Sunday morning. He asked interviewer Margaret Brennan, “Do you know how much – how happy people are to have more IRS agents out there? I mean, this is not – this not going to be popular around the country.”
Senator Scott is probably correct about the people who inhabit the circles in which he moves: they don’t much welcome more auditing agents on the IRS staff. But I doubt that Americans who earn less than $100,000 a year seriously disapprove. In fact, they may be saying “it’s about time.”
The IRS has been underfunded for years. In 2010 the number of full-time employees of the agency stood about 94,000. By 2018, after congressional Republicans had worked their will, that number had dropped to about 74,000. Enforcement employees declined by 30 percent.
It’s time-consuming and complicated to audit tax returns of high-income individuals and businesses. So the agency’s audit staff in recent years picked the low-hanging fruit, mostly evaluating returns of taxpayers with incomes less than $75,000, according to IRS data. In 2020 more than 40 percent of its audits targeted low-income recipients of the earned income tax credit, one of the country’s main anti-poverty measures.
A beefed-up enforcement staff will be able to put more resources into audits of higher-income taxpayers. New projections indicate a return on investment of $4.50 in revenue for every dollar spent on enforcement.
The nonpartisan Congressional Budget Office expects the IRS provisions will let the government knock $203 billion off the federal deficit in the next 10 years.
IRS Commissioner Charles Rettig messaged lawmakers last Thursday that the IRS will boost enforcement “in areas of challenge for the agency – large corporate and global high-net-worth taxpayers. . . . These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans.”
For most working Americans who earn a regular paycheck, filing a tax return is easy, with little opportunity for cheating. Their wages, and their W-2 forms, tell the feds exactly how much they’ve earned in the tax year.
The opportunities for fudging on a return are much greater for high-income corporations and individuals, whose sources of income are more diverse and complicated than a paycheck, and who have access to accountants and attorneys who can push back against IRS enforcement.
Senator John Thune (R-South Dakota) last Tuesday on the Senate floor spoke out against the Inflation Reduction Act’s increase for IRS enforcement funding, saying that with its passage “ . . . the IRS can spend more time harassing taxpayers around this country.”
What’s one person’s harassment is another’s fairness.
A number of Republicans hammer away at the demand of a few progressives to “defund the police” although few congressional Democrats propose that these days.
But defunding is what congressional Republicans did from 2010 to 2020 to the IRS, and what they advised in opposing the Inflation Reduction Act. IRS auditors constitute the government’s financial police force; starving the IRS amounts to defunding the enforcers.
Why shouldn’t the tax returns of high income Americans get as much scrutiny as those of low and middle income taxpayers?