You are likely to hear a lot more about the impending receipt of a substantial sum of money by the Internal Revenue Service (IRS) between now and the election in November, and for good reason.
The Republican Party enjoys picking fights with the government, and certain members of the party are already turning their rhetoric up to eleven.
Even though the Internal Revenue Service has long been criticized for its inability to do fundamental things like answer people’s questions and process their returns promptly, Republicans are now presenting the agency as being replete with thugs set to frighten normal Americans.
Sen. Chuck Grassley (R-Iowa), a longtime tax writer, conjured the idea of an IRS “strike team that goes in with AK-15s already loaded, ready to shoot some tiny businessperson in Iowa” in an interview with Fox News.
The Democrats think that’s really ludicrous.
“It’s unbelievable that we even need to say this, but there are not going to be 87,000 armed IRS agents going door-to-door with assault rifles,” said Ron Wyden, chair of the Senate Finance Committee. “There are not going to be 87,000 armed IRS agents going door-to-door with assault guns” (D-Ore.).
To cut through the bluster, here are five facts you should know about the $80 billion in funding for the IRS that was included in the recently enacted Democratic legislation for health care, climate change, and taxes.
An auditor on every doorstep?
The Republicans are concerned that the Obama administration will soon have an army of tax collectors on its hands because of the plan of the Biden administration to spend the money on hiring 87,000 additional workers.
The number that the Republicans are using comes from a graphic that is buried deep within a report that was published by the Treasury Department on its intentions for the agency one year ago. However, here’s the thing: The study doesn’t actually indicate how many examiners it intends to bring on.
The administration has been extremely explicit about the number of new hires it intends to make each year, but it hasn’t released many details about the work that all of those new hires will be doing.
There will almost certainly be a lot of people looking at returns. This has been a major focus for Democrats, and Congress has dedicated more than half of the money that the IRS receives ($46 billion) to increase the agency’s enforcement efforts.
(The Internal Revenue Service classifies approximately 31,000 of its current workers as working in “examinations and collections.” This accounts for roughly 40 per cent of the IRS’s total workforce.)
But in addition to that, the administration has a variety of additional goals in mind, such as enhancing the quality of service provided to customers; this will necessitate hiring throughout the entire agency.
Natasha Sarin, the agency’s counsellor for tax policy and implementation, stated that the organization has not yet made a decision regarding the number of additional auditors that it would require.
Who is subject to an audit?
The Republicans argue that the average American will undoubtedly face more audits as a result of all those people.
The Democrats sneer at the Republicans and claim that their primary concern is with high-end tax evasion committed by wealthy individuals and large organizations. In addition to this, they have made a commitment not to raise audit rates for taxpayers with incomes of less than $400,000
In their legislation, Democrats had included provisions to that effect; however, the Senate parliamentarian removed them because they violated the obscure rules that govern what kinds of things can be included in bills that are referred to as “reconciliation” bills.
This caused the Democrats’ provisions to be rendered ineffective. As a result of this, the administration published on Wednesday a letter written by Treasury Secretary Janet Yellen in which she made the promise that “audit rates will not raise relative to recent years for households making under $400,000.”
This could become problematic depending on the specifics of the situation. There is a good chance that the agency won’t have a clear idea of how much money someone made until after they have been audited.
This commitment may also make it more difficult for the agency to carry out its separate initiative to boost tax collections from individuals owning cryptocurrency.
In addition, it is not entirely clear what the administration means when it says “compared to recent years.” In recent years, due to constrained funds as well as the epidemic of coronavirus, audit rates have decreased, and the administration might not want to be bound by those reduced rates.
In any event, it is important to keep in mind that audits are conducted on a very small percentage of the average American’s income (only 0.1 per cent of those making between $75,000 and $100,000 in 2019).
The government makes public a wealth of information regarding the individuals and organizations that are subject to audits; hence, if there is a dramatic increase in the number of audits conducted on middle-class individuals, this should be reflected in the statistics.
Is the sum of 87,000 a lot?
When contrasted to the present headcount of the agency, which the IRS reports was 78,661 in the previous year, that most certainly appears to be the case. However, when compared to the number of employees that the IRS used to have, it appears to be a smaller workforce.
The number of people actively employed has been decreasing for many years. In 1992, the Internal Revenue Service had a total of 117,000 employees, which is 38,000 more than it does now.
Obviously, the organization had to deal with a smaller number of taxpayers back then (the U.S. population has grown almost 30 per cent since 1992).
In addition, the administration asserts that the rise is not as significant as it may appear to be because it anticipates a wave of retirements to occur within the agency in the years to come. Because of budget constraints that have increased over the past few years, the average age of workers has increased to an alarming degree.
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Sarin stated that she anticipates a total employment turnover of 50,000 over the next five years. A significant portion of the 87,000 personnel will be new hires to replace departing workers. She stated that the officials of the agency do not currently have an estimate for how large the workforce would ultimately be if the plan were implemented.
Eighty billion dollars is a lot of money, but analysts argue that it should be a money generator for the government because examiners bring in a significant amount more tax revenue than it costs to hire them.
It is unclear just how much money there is.
According to projections made by the impartial Congressional Budget Office, additional tax income of $204 billion over the following decade would result in a net gain of $124 billion for the federal government.
However, these estimates aren’t entirely reliable because they don’t take into consideration important details like how long it will take to hire workers and how long audits typically last.
The administration has the belief that it could be something even more serious. In the past, Democrats had engaged in a struggle with the Congressional Budget Office (CBO) over this issue.
They argued that the scorekeeper was underestimating the expected savings and that this was because many tax scofflaws would be dissuaded from cheating by a newly strengthened tax agency.
