The Treasury Department said the IRS could convert the $80 billion it was allocated under the 2022 Inflation Reduction Act into at least $561 billion in extra taxes collected over the next decade. If that amount is cut $20 billion, however, it cost more than $100 billion in potential revenue, the report claimed.
The agency is promoting the study just as Republicans are renewing their efforts to claw back the billions of dollars that lawmakers invested in the IRS as part of the IRA. Since then, Republicans have repeatedly tried to slash the extra funding for the IRS, succeeding last year in shrinking the allocation from $80 billion to $60 billion over 10 years.
The chairman of the House Ways and Means Committee questioned the agency’s math.
“This new self-serving report calls for even more IRS funding, uses pie-in-the-sky numbers, all without being straightforward about where the burdens of massive new enforcement efforts will fall,” Rep. Jason T. Smith (R-Mo.) wrote in an email to The Washington Post.
The Biden administration is touting immediate improvements in the IRS’s functioning since the infusion of cash, and the agency claims it has collected half a billion dollars over the past year by pursuing wealthy people’s tax debts. It has also cut down its massive backlog of returns and improved hold times on its phone line for taxpayers.
These efforts are nascent, the report notes, and the agency is still hiring the experts it needs to audit very wealthy taxpayers. It predicted that it will raise $100 million from such audits this fiscal year but will collect 80 times that — $8 billion — each year starting in 2030.
Administration officials touted the study, saying enhanced tax collection will help cut the federal deficit.
“This analysis demonstrates that President Biden’s investment in rebuilding the IRS will reduce the deficit by hundreds of billions of dollars by making the wealthy and big corporations pay the taxes they owe,” Lael Brainard, President Biden’s top economic adviser, said in a statement. “Congressional Republicans’ efforts to cut IRS funding show that they prioritize letting the wealthiest Americans and big corporations evade their taxes over cutting the deficit.”
Citing past research showing that if a taxpayer is audited one year, he or she will pay more the following years, the study estimated that wealthy people who get audited under the IRS’s new enforcement regime will not only pay $54 billion due from that enforcement but fork over an additional $38 billion in total through 2034.
Smith, who dismissed the new study as a “political stunt,” argued that the IRS will greatly increase audits of working-class taxpayers if given more money. But the Treasury has said it will not increase audits for people earning less than $400,000 a year.
The study did not estimate the value of the deterrence effect more broadly — that is, whether taxpayers might be more likely to pay their taxes honestly if they know IRS enforcement is more vigorous. But it did try to tally the total value of several other collection efforts.
For example, most people who make money on crypto sales don’t pay tax on that income, the study claimed. Accordingly, the IRS plans to have the technology in the future to process information about crypto trades to encourage tax compliance. Moreover, taxpayers are more likely to pay when they can reach the agency on the phone to ask a question about their return, or when they get a notice in the mail written in language they can understand, the study noted, saying that such improvements in technology and customer service are also worth billions in eventual tax collections.
The report shows in some detail how it reached its findings about the high value of deterrence, but does less to explain how it found numbers for the other improvements. Smith argued the IRS is putting too much of its new funding into enforcement as opposed to customer service.