By: Tianhao Chen

This week, Democrats in the Senate are attempting to pass the Inflation Reduction Act to strengthen the Internal Revenue Service.

The bill will invest $80 billion into the IRS, collect more taxes, and have stricter enforcement of tax collection on large companies and people with high-income. This will shift the IRS’s focus from people with middle to low income, as the IRS collects most of its money by taking advantage of errors made on tax returns.

The IRS uses this tactic because it’s cheap, and people in the lower tax brackets tend to not appeal the audits. Because of this, the IRS receives $10 for each $1 they spend on these audits.

While Democrats endorse the bill, it has seen backlash from Republican legislators because they believe the IRS will use the new resources and further exploit middle- and lower-class citizens. Sen. John Barrasso (R-Wyo.) remarked at a news conference that the legislation would impact “families, farmers and the small businesses of Americans, that’s who’s going to bear the burden of this legislation.”

Adding onto this, Sen. John Thune (R-S.D.) said that “[t]his is an agency that only succeeded in answering about one out of every 50 phone calls during the 2021 tax season, yet 4 percent of the $80 billion is going to taxpayer services; 57 percent goes to enforcement, so that the IRS can spend more time harassing taxpayers around this country.”

Ironically, experts believe it’s Republicans who have caused the IRS to target middle and lower-class people because of the lack of resources Republicans supply to the IRS. For example, the IRS uses a 60-year-old programming language that requires them to allocate resources to educate new employees. In addition, the number of staff has decreased since 2010, from over 94,000 to around 78,661.

Democrats plan for $45.6 billion of the $80 billion to go towards enforcement with an estimated $4.50 collected per dollar spent. Two reasons were given to the lower return on investment: that the estimate was low or diminishing returns for targeting people with higher income.

Douglas Holtz-Eakin, former director of the Congressional Budget Office, criticized the move, saying collecting taxes from higher income people is “not an effective place to go raise revenue.”

Nonetheless, the Congressional Budget Office said the bill will help collect more money and reduce the federal deficit by $203 billion.

Link to Article: https://www.washingtonpost.com/business/2022/08/06/inflation-reduction-act-irs/