The Inflation Reduction Act, signed into law in August 2022, includes a special $80 billion allocation of funds over the next several years to the Internal Revenue Service to facilitate its work. About half of the funds are destined to increased audits and other enforcement efforts. $25 billion is allocated to operation support, $5 billion to technology upgrades and $3 billion to taxpayer services, including such mundane services as answering the phone when a taxpayer, or a taxpayer representative, calls with a question.
As one might suspect, the idea of a stronger, better funded IRS isn’t something everyone likes. Tax collectors since the days Zacchaeus, Jericho’s chief tax collector, climbed a tree to better see Jesus as he talked to a crowd, haven’t been popular. There are a lot of people today, particularly political conservatives, who’d like to leave the IRS as it is and, thus, oppose the idea of an IRS funding that would increase the power of the IRS to audit and collect taxes.
Ignoring the facts (I’ll describe in a minute): the GOP’s expressed rationale goes something like this:
Lindsey Graham (R-S.C.): “If you think the federal government is out of control now. God help us when you get 87,000 new IRS agents who are looking under every rock and stone to get money out of your pocket.”
Kevin McCarthy: (GOP House leader): “Democrats’ new army of 87,000 IRS agents will be coming for you-with 710,000 new audits for Americans who earn less than $75K.”
Kevin Brady (R-Texas): “[T]here’s simply so many more IRS agents that will be unleashed on the American public, and of course it’s going to land on those Walmart shoppers and middle-class families.”
Florida’s Governor DeSantis equates the funding of the IRS (along with the recent taking of government records from Trump’s Florida residence, which he commented on before the Justice Department revealed that it had picked up 11 boxes of classified papers) as evidence of the “weaponizing of federal agencies against the Regime’s political opponents.” He said, “Now the Regime is getting another 87K IRS agents to wield against its adversaries? Banana Republic.” (A Banana Republic is a despotic government that’s corrupt, repressive and run by government overreach.)
Of course, the factchecker Snopes points out the claim by Graham, DeSantis, and the host of other Republicans is totally false. There’s absolutely no plan to sic IRS agents on middle-class American people to scrounge up dollars Americans need for groceries or anything else. The clear motivation behind Inflation Adjustment Act IRS funding is to focus IRS audits on those who earn $400,000 annually or more.
The fundamental problem is that the IRS is in a mess, short on staff, in large part because Congress has consistently underfunded the agency, converting America into a tax-haven for those among us who chose not to pay taxes that are necessary to reduce national debt and operate our government. As a result, the IRS hasn’t been able to collect billions of tax dollars due. In fact, as of July 31, 2022, there are over 10.2 million income tax returns that the IRS hasn’t been able to process.
In his 2022 report to Congress, Charles Rettig, the Commissioner of the Internal Revenue Service advised:
“Over the course of the last decade, the IRS’s budget has decreased by more than 15 percent in real terms. Because of this decrease, in FY 2021 we realized less than 79,000 full-time equivalents (FTEs), which is close to 1974 levels. Since 2010, IRS Enforcement FTEs have decreased by 30 percent, while the nation’s real Gross Domestic Product has increased by 29 percent, and the filing population has increased by 14 percent. Over the next six years, we estimate we will need to hire 52,000 employees just to maintain our current levels. Every measure that is important to effective tax administration has suffered tremendously in recent years, with profound deficiencies resulting from underinvestment in human capital and information technology. …
“The IRS is serving more people and entities in a global environment than ever before, while handling new and bigger responsibilities. This was the case before the pandemic and has only increased since then. At the same time, we have experienced delays in updating our IT systems, which means the IRS and taxpayers must continue to use certain paper-based processes. This use of paper processes can result in significant delays, contributing to IRS inventories and limiting taxpayers’ ability to know the status of their cases. …
“We are in this position because we have not had the sustained sufficient multi-year investment for IT modernization necessary to improve our technology and operating systems. … Taxpayers should not have to wait and wait on the phone—often to no avail. I want to better serve the American people—and so do the dedicated employees at the IRS. They will finally be able to do so if you, and your colleagues, provide us the stable, multi-year funding we need.”
What’s missing from the GOP rails against the IRS funding is, as I point out above, the simple fact that what has become a perpetual underfunding of the IRS has created a ‘tax haven” in the United States for those who don’t want to pay their taxes. (A tax haven is a country that has a zero or a very low effective tax rate.) It’s not collection of taxes due that creates DeSantis’s “Banana Republic,” it’s Congress’s condoning of the IRS’s under-funded, out of date, tax enforcement and collection system that allows those who owe taxes to avoid payment that puts our country on the cusp of becoming a Banana Republic! The “adversaries” to the IRS ramping up are not the American people at large, as DeSantis and the GOP railers would lead us to believe. The adversaries are those who use America as an illegal tax haven, secured in the fact that the understaffed IRS has the inability to monitor and enforce tax paying. And the statistics tell us that’s a pretty wealthy group of people.
In simplified terms, we have too many members of Congressional who love the millions they collect in political contributions but have such a low-tax mentality that they don’t give a damn about collecting enough taxes from their hefty political contributors to pay our nation’s bills.
And that’s unacceptable. The failure to collect lawful taxes corrupts and undermines democracy.
In 2021, I wrote in Democracy of Dollars:
“In 1789, Benjamin Franklin wrote a letter to his friend, French physicist and clockmaker, Jean-Baptiste Le Roy, pontificating, ‘Our new Constitution is now established and has an appearance that promises permanency; but nothing can be said to be certain, except death and taxes.’”
“Well, that’s almost always true. But when our two political branches of government, the executive and legislative branches, underfund and understaff the Internal Revenue Service not only do our nation’s deficits rise but we get another result: no certainty in collecting necessary revenues from taxes.
“In 2010, the IRS employed 13,879 agents and received 230.4 million tax returns. In 2019, after budget cuts, the IRS employed 8,526 agents but received 253 million tax returns. The result? Davison and Versprille write in their 2020 article, “For now, millionaires face less chance of IRS audit,” that if you earned $1 million or more, there’s less than a 1% chance you will be audited.
“But, there’s more.
“The Treasury Inspector General for Tax Administration reported on May 29, 2020: ‘The IRS did not work 369,180 high-income nonfilers, with estimated tax due of $20.8 billion. Of the 369,180 high-income nonfilers, 326,579 were not placed in inventory to be selected for work and 42,601 were closed out of the inventory without ever being worked. In addition, the remaining 510,235 high-income nonfilers, totaling estimated tax due of $24.9 billion, are sitting in one of the Collection function’s inventory streams and will likely not be pursued as resources decline. The IRS removed high-income nonfiler cases from inventory, resulting in 37,217 cases totaling $3.2 billion in estimated taxes that will not likely be worked by the IRS.’”
As House Ways and Means Committee Chairman Richard Neal (D-Mass.) explained when the Inflation Reduction Act was adopted, “For decades, Republicans have starved the IRS of funding, and now American taxpayers are paying the price… .”
In May 2022, The Treasury Inspector General for Tax Administration issued its “Interim Results of the 2022 Filing Season.” The Report includes: “During the 2022 Filing Season, the IRS also continues to have a significant backlog of individual tax returns and other types of taxpayer account work that it was unable to process before the end of Calendar Year 2021. Backlog inventories associated with the 2021 Filing Season are larger than those resulting from the 2020 Filing Season. More than 16.4 million individual tax returns, transactions, and Accounts Management cases remained in inventory as of the end of Calendar Year 2021. The inability to timely process tax returns and address tax account work continues to have a significant impact on the associated taxpayers.” The Report also points out that, as of December 31, 2021 about 5 million pieces of correspondence were being processed; and as of March 12, 2022, the IRS had 508,474 unopened mail items. Furthermore, fewer than 20% of taxpayers who called the IRS were able to actually talk to a live person!
The United States Government Accountability Office May 2022 report, “Tax Compliance, Trends of IRS Audit Rate and Results for Individual Taxpayers by Income,” concludes:
“In recent years, IRS has audited a decreasing proportion of individual tax returns. The Treasury Inspector General for Tax Administration (TIGTA) has reported that the audit rate declined 44 percent between fiscal years 2015 and 2019. Based on TIGTA’s report, for these years, the audit rate dropped 75 percent for individuals with incomes of $1 million or more, while the audit rate for lower-income taxpayers that claim the Earned Income Tax Credit (EITC) decreased 33 percent.
“This trend has raised concerns about the potential for a decline in taxpayers accurately reporting their tax liability. IRS estimates individual taxpayers underreported their income tax on average by $245 billion each year for tax years 2011 to 2013. …”
“IRS has had difficulty replacing audit staff lost from attrition and retirements. At the same time, recently enacted legislation has increased IRS’s responsibilities. In fiscal year 2021, IRS’s budget was $11.9 billion—over $200 million less than 11 years ago. According to IRS officials, with inflation and anticipated mandatory pay raises, IRS’s fiscal year 2021 budget is $2.7 billion less than in fiscal year 2010—a 22 percent reduction in real terms. As a result of this decrease, IRS officials said that they expect to support about 74,200 full-time equivalents this fiscal year—a level nearly identical to its staffing level in 1973.”
Collecting taxes due on $245 billions of annually unreported income could go a long way to reducing national debt and providing for the public good. If we’re becoming a Banana Republic, the tax collection shortfall from unreported income is a prime, inappropriate, corrupting factor.
As to whether or not DeSantis is a champion or an adversary of Banana Republics, you might check out: Jason Garcia’s article, “In his first term as governor, Ron DeSantis raised taxes on Floridians by more than $1 billion.” The article points out, “The Republican governor – and aspiring GOP presidential contender – has cut taxes by more than $4 billion… . But that’s because DeSantis has cut taxes for businesses by approximately $5.6 billion. That more than offsets the roughly $1.5 billion in higher taxes DeSantis imposed on Florida consumers.” And take a look at Garcia’s follow-up article, “Ten special-interest tax breaks from Ron DeSantis’ first term as Florida governor.”
James Madison’s notes from the 1787 Constitutional Convention include the May 31st comments of Elbridge Gerry. Gerry begins his speech with comments on how people are easily misled by “pretended patriots,” who circulate “false reports.” He adds an insightful conclusion: “One principle of evil arises from the want of due provision for those employed in the administration of government. It would seem to be a maximum of democracy to starve the public servants.”
Maybe, just maybe, with the IRS funds provided by the Inflation Reduction Act, our public servants in the IRS will no longer be starved and our government will get closer to collecting the revenue it is entitled to collect to provide for the public good, which is its prime mission. And, just maybe, we won’t morph into a Banana Republic!