As part of the Inflation Reduction Act, which President Joe Biden signed into law on August 16, the Internal Revenue Service (IRS) will get an infusion of funds equal to $80 billion over the following ten years.
A large increase in resources has many people questioning what an expanded IRS would entail for the people of the United States.
The idea that the Internal Revenue Service (IRS) will use the monies to hire 87,000 armed IRS agents has been gaining popularity among mainstream audiences as a Republican talking point.
The chairwoman of the Republican National Committee, Ronna McDaniel, asked in a tweet, “How long until Democrats send the IRS ‘SWAT team’ after your kids’ lemonade stand?”
The steps were taken by the government of the United States point in the direction of implementing a non-mainstream economic theory known as Modern Monetary Theory (MMT).
This financial model exists outside of the traditional and mainstream economic policies that have guided the United States throughout its history. This is the reason why it is considered to be heterodoxical.
Those who support the MMT theory argue that the federal government of the United States have the authority to spend, borrow, print money, tax, and control all of the available financial levers.
In contrast to the financial constraints imposed on a family, it is free to print an unlimited amount of money whenever it so chooses.
Many people believe that inflation is the direct result of wasteful spending. The event in question has already taken place.
A forty-year record-level high rate of inflation was created as a result of the injection of trillions of dollars into the economy during the pandemic in the form of government stimulus checks, the Paycheck Protection Program, and enhanced unemployment benefits. This was done in conjunction with the Federal Reserve Bank, which artificially kept inflation rates low.
Both Powell and Yellen Misjudged Inflation, and Now It Is the American People Who Will Pay the Price
At first, both the Chairman of the Federal Reserve, Jerome Powell and the Secretary of the Treasury, Janet Yellen, incorrectly stated that inflation was “transitory.”
In retrospect, it is clear that they made an incorrect assessment. Powell, seeing the predicament, declared his intention to implement measures that would slow down the economy to rein in inflation.
Powell is raising interest rates and pulling back on all of the quantitative easing policies that were previously in place to slow the economy. The pain will be felt by firms in an atmosphere with increasingly stringent fiscal restrictions.
They won’t have access to funds at low-interest rates, and their expenses are quickly going up. One of the outcomes that are supposed to take place is for enterprises to engage in significant amounts of layoffs.
Companies seem to be making these kinds of announcements on an almost daily basis these days: layoffs, hiring freezes, allowing attrition without replacement, and rescinding job offers.
As more individuals lose their employment, they will have less money to spend it. When customers cut back on their spending, it will be harder for firms to make money.
When this happens on a large scale, it causes a contraction in the economy, which then causes a downward spiral.
Recently, for instance, borrowing rates associated with the purchase of a home virtually doubled.
The property market shifted from having people make offers that were greater than the asking price to having families walk away because they were unable to afford the increased monthly mortgage rates.
One of the most important industries is real estate. If individuals are unable to purchase homes, there will be a decrease in demand for blue-collar professionals such as architects, real estate agents, contractors, electricians, carpenters, and plumbers, among other tradespeople.
The IRS will most likely conduct audits of those in the working class and middle class.
The Modern Monetary Theory (MMT) contends that increasing the amount of money that citizens of the United States are required to pay in taxes is an excellent approach to slow the expansion of the economy.
Many people believe that wealthy individuals and huge organisations should be required to pay the amount of taxes that is appropriate for them.
The resources will allegedly be put to use to “crack down on high-income and corporate tax evaders who cost the American people hundreds of billions of dollars each year,” as stated by an official of the Treasury.
It is somewhat dishonest for the government to imagine that it can wring money out of this group of people.
They have the financial resources at their disposal to enable them to engage the most qualified accountants, tax professionals, and lawyers.
The extremely rich and major corporations have access to all of the available loopholes, which allows them to conceal their wealth and lawfully avoid paying taxes on a significant portion of their revenues.
The working class and the middle class are what is left. The majority of American citizens do not have a thorough understanding of the complex world of taxes. They do not have a large number of legal, financial, and accounting teams at their disposal to assist them.
Anyone who has ever attempted to do their own taxes or looked at the documentation that their accountants sent them is aware that the process is overly difficult.
Because of the intricacy of the tax code, most families may make mistakes on their tax forms without ever realising it.
The underground cash economy will be the focus of the investigation.
Cash is the primary form of payment for the majority of proprietors of smaller establishments, including restaurants, pubs, and beauty shops, amongst others.
They may try to play fast and loose with the figures despite the razor-thin margins they have. IRS agents will most likely focus their attention on these organisations because they stand a greater chance of successfully extorting money from these entities than they do from fighting a tax dispute with a billionaire or a huge multinational conglomerate for years on end.
Because of the increase in budget and resources, there will probably be an increased number of audits, and as a result, Americans will wind up paying a significant amount more in taxes and penalties than they would have otherwise.
Despite this, Natasha Sarin, who works as a counsellor at the Treasury Department and focuses on tax policy and execution, has a contrary opinion. “Let’s be very clear about what these resources are and are not doing,” said Sarin.
“Let’s be very clear about what these resources are.” These resources will not be used to increase audits of any small businesses or households with annual incomes of less than $400,000 per.
Even if this doesn’t take place, just the possibility of being audited might be enough to convince people to keep their tax returns completely truthful this year to avoid the wrath of the tax collector.
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Because of the increased emphasis on tax collection, a significant amount of money will be removed from circulation in either case.
MMT is characterised by the syphoning off of billions or even trillions of dollars, which will have the effect of slowing down the economy because individuals will have less money to spend.
