The $80 billion question: What will the IRS do with all its new money?


Democrats call it absurd.

“It’s unbelievable that we even need to say this, but there won’t be 87,000 armed tax officials going door to door with assault rifles,” the commission chairman said. Senate finances. Ron Wyden (Golden.).

To cut through the rhetoric, here are five things to know about the $80 billion in IRS funding included in the funding recently approved by Democrats health, climate and taxation.

A listener at every doorstep?

The Biden administration wants to use the money to hire 87,000 people, a hiring spree that has warned Republicans of an army of tax collectors.

Republicans pull that number from a table buried in a report the Treasury Department released last year on its plans for the agency, but here’s the thing: It doesn’t actually say how many reviewers it has. intention to bring.

The administration has been very specific about the number of people they want to hire each year, but they haven’t provided many details about what all of those people would do.

Many will surely consider the returns. It’s been a big priority for Democrats, and Congress has earmarked more than half of the IRS’ money — $46 billion — to bolster enforcement. (About 31,000 or about 40% of current IRS employees are classified by the agency as working in “examinations and collections.”)

But the administration also wants to do all kinds of other things, like improve customer service, which means hiring across the agency. It has not decided how many additional auditors it will need, said Natasha Sarin, the agency’s adviser for tax policy and implementation.

Who is audited

Republicans say all of these people will inevitably mean more audits for average Americans. Democrats scoff, saying they only care about high-end tax evasion by the rich and big business. And they promise not to increase verification rates for those with incomes below $400,000.

Democrats had included provisions in their legislation to that effect, though they were struck down by the Senate congressman as a violation of murky chamber rules on the kinds of things that can go into so-called bills. reconciliation law. That prompted the administration to release a letter Wednesday from Treasury Secretary Janet Yellen promising that “audit rates will not increase from past years for households earning less than $400,000.”

This could be tricky in some circumstances. There will likely be instances where the agency won’t really know how much someone has earned until they have been vetted. The promise could also complicate a separate effort by the agency to improve tax collection from people holding cryptocurrencies.

And it’s unclear what the administration means by “compared to recent years.” Audit rates have dropped in recent years, thanks to tight budgets as well as the coronavirus pandemic, and the administration may not want to be bound by these reduced rates.

Either way, it’s worth noting that very few average Americans are audited — just 0.1% of those earning between $75,000 and $100,000 in 2019. The department releases a slew of data on exactly who is audited. , so if the middle class exams suddenly jump, it should show in the numbers.

87,000 is a lot?

It certainly looks like that compared to the agency’s current workforce, which the IRS said last year was 78,661. It does, however, appear smaller compared to the number of people the IRS previously had.

Numbers have been declining for years. In 1992, the IRS had 117,000 employees, 38,000 more than today. Back then, of course, the agency was dealing with fewer taxpayers (the US population has grown nearly 30% since 1992).

The administration also says the increase is not as big as it looks because it expects a wave of retirements in the coming years at the agency. The workforce is disproportionately older, thanks to budgets that have reduced hiring in recent years.

Sarin said she expects 50,000 employees to leave over the next five years. Thus, many of the 87,000 employees will replace current employees. Agency officials don’t yet know what the size of the workforce would be under its plan, she said.

I have to spend money to make money

Eighty billion dollars is a lot, but experts say it should bring in a lot of money for the government because examiners bring in far more tax revenue than it costs to employ them.

Exactly how much is debatable.

The nonpartisan Congressional Budget Office expects $204 billion in additional revenue over the next decade, so the government would earn $124 billion. But these estimates are uncertain, given factors such as the time it will take to hire people and the average length of audits.

The administration thinks it could be more than that. Democrats had fought the CBO over it, arguing the marker underplayed likely savings since, lawmakers say, many tax evaders would be deterred from cheating by a newly empowered tax agency.

So what happens next?

It’s unclear exactly how the IRS intends to spend the money.

There were provisions in the legislation ordering the agency to release a report to Congress within six months on what it intends to do with the money. Lawmakers had also required quarterly updates and included a fine of $100,000 a day for late reporting.

But these provisions were also struck by the parliamentarian. All that remains in the bill are the general categories of expenditures, such as the $46 billion for enforcement. The IRS is nonetheless working on a spending plan that it intends to release in the coming months, Sarin said.

On top of that, President Joe Biden must decide who he wants to lead the IRS. Commissioner Chuck Rettig’s term ends in November. The administration has considered renaming him, though some Democrats in Congress want him gone.

Approval of the $80 billion will give lawmakers something else to consider — whether they think Rettig is the right person to lead an overhaul of the agency.

Finally, it should be noted that despite the injection of cash, things are not going to change overnight. The IRS not only has to develop its spending plan, it will also have to implement it.

Hiring could be slow, for example, thanks to laborious government processes and the ultra-low unemployment rate of 3.5% which could make it difficult to fill positions. Democrats had included provisions in their bill that would have eliminated some of the hiring bureaucracy and allowed the IRS to pay people more, but those were also slammed by the congressman.

Of the $80 billion, the CBO predicts that the IRS will actually spend only $5 billion more next year. Most of the money won’t come out for years.


Politico

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