Republicans in Congress are attempting to reduce the $80 billion increase in funding for the Internal Revenue Service (IRS) that Democrats approved as part of the Inflation Reduction Act of 2022.
The funding was justified as a way to correct years of underfunding for the tax collection agency, leading to poor customer service and processing delays. The additional funding will be used for modernization and IT improvements as well as hiring 87,000 new IRS employees to help raise an additional $204 billion in tax revenue over a 10-year period.
However, in January the House voted 221-210, along a party line vote, to claw back roughly $70 billion of that funding as part of the Family and Small Business Taxpayer Protection Act, one of the first votes under the new Republican majority.
“The last thing [Americans] need is more IRS agents knocking on doors to conduct audits, yet this IRS funding is part of the broad Biden administration strategy to tax [and] audit exponentially more Americans,” said Rep. Adrian Smith (R-Neb.) in a speech. Smith co-sponsored the bill with Rep. Michelle Steel (R-Calif.). Smith also argued that the increase in tax collection services would likely target working- and middle-class Americans.
In his floor speech, Smith specifically alluded to Treasury Secretary Janet Yellen’s instructions to the IRS for the new funds, which included clearing a backlog of unprocessed tax returns. Smith claimed nine out of 10 new audits would target families earning less than $400,000, although the Biden administration has explicitly said that is not the case.
The new chair of the House Ways and Means Committee, Rep. Jason Smith (R-Mo.), applauded the bill’s passage and said in a statement that Republicans would take even further action to hold the IRS accountable by having the new IRS commissioner, if confirmed, “spend a lot of time before our committee answering questions about the leaking of sensitive taxpayer information and an agency with a history of targeting conservative Americans.”
Conservatives have long accused the IRS of targeting audits at conservative political organizations and individuals, although there is no evidence of political bias. The bill’s passage was also a win for newly elected House Speaker Kevin McCarthy (R-Calif.), who told reporters last fall during the midterm elections that he’d make protecting Americans from the IRS one of his first orders of business if he became speaker.
“On the very first day, we’ll repeal the 87,000 new IRS agents because we think the government should be there to help you, not to go after you,” McCarthy said. Democrats, on the other hand, argue that cutting IRS funding will do the opposite of what Republicans intend and will instead allow wealthy individuals and corporations to dodge taxes.
“With their first economic legislation of the new Congress, House Republicans are making clear that their top economic priority is to allow the rich and multibillion dollar corporations to skip out on their taxes, while making life harder for ordinary, middle-class families that pay the taxes they owe,” the White House Office of Management and Budget said in a statement following the bill’s passage.
The Congressional Budget Office estimated that the bill could increase the national deficit by $115 billion over the next 10 years by allowing wealthy tax evaders to continue to engage in tax fraud. The Center on Budget and Policy Priorities (CBPP), a progressive think tank based in D.C., argued that with additional funding, the IRS could put greater manpower behind its efforts going after large corporations involved in tax evasion schemes.
That process is “time-consuming” given the fact that the IRS is typically “outgunned” by the high-priced legal teams of these corporations, Samantha Jacoby, a senior tax analyst at CBPP, wrote in a blog post.
Jacoby also explained that greater IRS funding would allow the agency to target a major source of the tax gap, or the difference between taxes that are owed and collected. “With the funding, the agency could hire and train audit staff equipped to conduct the complicated audits of large corporations and very high-income people,” she wrote.
“The tax returns of high-income and high-wealth people and large businesses are complex and auditing them is labor intensive.”
The bill faces solid opposition in the Democrat-controlled Senate and would certainly be vetoed by President Joe Biden if it were to reach his desk.
For more background, see the January 2018 issue of Congressional Digest on “Tax Reform.”
