The IRS has stated that it is ready to collect a significantly larger amount of tax revenue by pursuing overdue and unpaid taxes, thanks to funding from the Inflation Reduction Act (IRA). This is much more than what was initially expected.
A new analysis released on Tuesday by the Treasury Department and the IRS predicts that tax revenues could increase by up to $561 billion from 2024 to 2034. This is due to enhanced enforcement enabled by the IRA funding, which was enacted into law by the Democrats in August 2022.
Some Republican lawmakers have proposed reducing IRS funding, warning that the tax agency could increase audits of middle-class Americans. However, officials from the IRS and Treasury have stated that the IRS is focused on identifying wealthy individuals and businesses who have not paid their taxes.
National Economic Adviser Lael Brainard stated, “This analysis shows that President Biden’s investment in rebuilding the IRS will reduce the deficit by hundreds of billions of dollars by ensuring that the wealthy and large corporations pay their taxes.”
In 2022, the Congressional Budget Office estimated that the new IRS funding provided by the IRA would increase revenues by $180.4 billion from 2022 to 2031. The IRS now says that if the IRA funding is restored and diversified, the estimated revenues could reach as much as $851 billion from 2024 to 2034.
Administration officials are using this report to promote President Joe Biden’s economic agenda as he campaigns for reelection and as the IRS continually faces threats to its funding.
Brainard added, “The efforts of Congressional Republicans to cut IRS funding show that they prioritize allowing the wealthiest Americans and large corporations to evade their taxes over reducing the deficit.”
The Inflation Reduction Act provided the IRS with an additional $80 billion in funding. However, House Republicans incorporated a $1.4 billion reduction to the IRS into the debt ceiling and budget cuts package passed by Congress last summer. A separate agreement diverted an additional $20 billion from the IRS over the next two years to other non-defense programs.
Since then, the agency has been demonstrating how it is using the remaining funds in hopes of preventing further cuts. New customer service improvements were introduced at the start of the tax season on January 29, and earlier this month, the IRS announced that it had recovered half a billion dollars in back taxes from wealthy tax evaders.
Ensuring that people pay their taxes is one of the biggest challenges for the tax collection agency. The audit rate for millionaires dropped by more than 70% from 2010 to 2019, and the audit rate for large corporations fell by more than 50%, according to Greg Leiserson, Treasury’s Deputy Assistant Secretary for Tax Analysis. He said that the IRA funding “is enabling the IRS to reverse this trend.”
The tax gap, which is the difference between taxes owed and taxes paid, has grown to more than $600 billion annually, according to the IRS.
Image Credit: IRS