How a Democrat-Strengthened IRS Might Harm Low-Earnings People

The Democrats’ latest health care and climate spending bill includes an $80 billion increase Internal Revenue Service which is designed to help the agency crack down on wealthy tax cheats. But Republican critics say a bigger IRS could ultimately hurt lower-income Americans.

A top priority was to provide an influx of funding to the IRS President Biden. He became one of the most prominent members of the Anti-Inflation Act introduced last week by Senate Majority Leader Chuck Schumer, D-N.Y. and Sen. Joe Manchin, DW.Va., funders.

Democrats projected that increased funding for the IRS would increase federal revenue by $124 billion over the next decade. According to IRS Commissioner Chuck Rettig’s estimate last year, about $1 trillion in federal taxes go unpaid each year due to errors, fraud and a lack of resources to properly collect them.

But GOP lawmakers sounded the alarm about the proposal, warning it could have serious consequences for lower-income workers.


Internal Revenue Service headquarters in Washington, D.C., 2022. February 25 (Al Drago/Bloomberg via Getty Images/Getty Images)

That’s because the IRS disproportionately targets low-income Americans in its annual tax audits. In fact, households with incomes below $25,000 are five times more likely to be audited by the agency than all others. tax data analysis beginning in fiscal year 2021 at Syracuse University’s Transaction Records Access Clearinghouse (TRAC).

The reason for this is an increase in the number of “correspondence audits,” meaning the IRS conducts reviews of tax returns by letter or phone call, rather than more complex face-to-face audits. Only a fraction – 100,000 of 659,000 audits in 2021. – were performed in person.

According to the Syracuse study, more than half of the correspondence audits initiated by the IRS last year—54 percent—were — involved low-income workers with gross incomes of less than $25,000 who claimed the Earned Income Tax Credit, an anti-poverty measure.

Even taxpayers with total positive income ranging from $200,000 to $1 million. USD, had a third chance audited by the IRS compared to the lowest income earners. About 9 million taxpayers reported this high income in 2021, but fewer than 40,000 of their returns were audited, or about 4.5 out of 1,000. That’s in sharp contrast to lower-income Americans, who had an audit rate of 13 out of 1,000.

Sens. Joe Manchin and Chuck Schumer

Sen. Joe Manchin, DW.Va., leaves and speaks with Senate Majority Leader Chuck Schumer, DN.Y., before a ceremony where President Joe Biden signed the 2022 Consolidated Appropriations Act into law. March 15 Washington, DC. (Chip Somodevilla/Getty Images/Getty Images)


This discrepancy is primarily due to the fact that high-income taxpayers have sophisticated investments that can easily cover the gap between taxes owed and paid compared to taxes reported and paid.

“Barring the unlikely of significant changes to IRS enforcement, enhanced IRS enforcement would lead to greater scrutiny of taxpayers and increased audit risk,” the right-wing Heritage Foundation said in a recent blog post.

The Heritage Foundation noted that most IRS individual audit investigations target taxpayers who report less than $50,000 in adjusted gross income. Although this group earns much less income than others, in 2010 it faced an IRS-recommended tax adjustment of about $3.4 billion for the fiscal year. USD. This is 3.7 billion.

President Biden

in 2022 July 6 At Max S. Hayes High School in Cleveland, Ohio, President Joe Biden talks about the economy and the final rule implementing the bailout program that protects multiemployer pension plans. (Saul Loeb/AFP via Getty Images/Getty Images)

The IRS has said it will not increase audits of households making less than $400,000 if the $80 billion tax bill is approved. USD funding.


“These resources are in no way intended to increase audits of small businesses or middle-income Americans,” IRS Commissioner Retting wrote in a letter to lawmakers Thursday. “As planned, our investment in these enforcement resources is timed in line with Treasury’s directive that audit rates for households earning less than $400,000 will not increase compared to recent years.”

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