How Democrats’ beefed up IRS could hurt low-income Americans

Democrats’ latest health and climate spending bill includes an $80 billion increase in the Internal Revenue Service which aims to help the agency crack down on wealthy tax evaders. However, Republican critics say a bigger IRS could ultimately hurt low-income Americans.

Providing the IRS with an influx of funds has been a top priority for President Biden. He became one of the most important financiers of the Cut Inflation Act that Senate Majority Leader Chuck Schumer, DN.Y., and Sen. Joe Manchin, DW.Va., have unveiled last week.

Democrats have projected increased IRS funding could add an additional $124 billion in federal revenue over the next decade by hiring more tax enforcement officers who can curb personal tax evasion. and wealthy businesses. According to an estimate by IRS Commissioner Chuck Rettig last year, about $1 trillion in federal taxes go unpaid each year due to error, fraud and a lack of resources to properly enforce. recoveries.

But GOP lawmakers have sounded the alarm over the proposal, warning it could have serious ramifications for low-income workers.


The headquarters of the Internal Revenue Service in Washington, DC on February 25, 2022. (Al Drago/Bloomberg via Getty Images/Getty Images)

That’s because the IRS disproportionately targets low-income Americans when it conducts tax audits each year. In fact, households with less than $25,000 in income are five times more likely to be audited by the agency than everyone else, according to a recent analysis of fiscal year 2021 tax data by the Transactional Records Access Clearinghouse ( TRAC) from Syracuse University.

The reason for this is an increase in so-called “hand-on-hand” audits, which means the IRS conducts tax return reviews by mail or phone rather than more complex face-to-face audits. . Only a fraction – 100,000 of 659,000 audits in 2021 – were conducted in person.

According to the Syracuse study, more than half of match checks initiated by the IRS last year — 54% — involved low-income workers with gross receipts under $25,000 who applied for the credit. earned income tax, a poverty alleviation measure.

Even taxpayers with positive total incomes ranging from $200,000 to $1 million had a one-third chance of being audited by the IRS compared to the lowest income earners. About 9 million taxpayers reported these high income levels in 2021, but fewer than 40,000 of their returns were verified, or about 4.5 out of 1,000. This contrasts sharply with lower-income Americans, who faced at an audit rate of 13 out of 1,000.

Meaning.  Joe Manchin and Chuck Schumer

Sen. Joe Manchin, DW.Va., left, speaks with Senate Majority Leader Chuck Schumer, DN.Y., before the ceremony at which President Joe Biden signed the Appropriations Act consolidated, March 15, 2022, in Washington, D.C. (Chip Somodevilla/Getty Images/Getty Images)


The discrepancy is primarily due to the fact that high-income taxpayers have complex investments that can easily mask discrepancies between taxes due and paid and taxes reported and paid.

“Barring an unlikely significant change in the composition of IRS enforcement, enhanced IRS enforcement would subject taxpayers of all incomes to greater scrutiny and greater audit risk. “said the right-wing Heritage Foundation in a recent blog post.

The Heritage Foundation noted that most IRS individual audit reviews target taxpayers reporting less than $50,000 in adjusted gross income. Although this group earns considerably less income than others, they faced IRS-recommended tax adjustments of about $3.4 billion in fiscal year 2010. That compares to about 3 $.7 billion for Americans reporting over $50,000.

President Biden

President Joe Biden speaks about the economy and the final rule implementing the U.S. bailout special financial assistance program, protecting multiemployer pension plans, at Max S. Hayes High School in Cleveland, Ohio, on 6 July 2022. (Saul Loeb/AFP via Getty Images/Getty Images)

The IRS has maintained that it will not increase audits on households earning less than $400,000 if the $80 billion funding is approved.


“These resources are absolutely not intended to increase audit control over small businesses or middle-income Americans,” Retting, the IRS commissioner, wrote in a letter to lawmakers Thursday. “As we anticipated, our investment in these enforcement resources is designed around the Treasury directive that audit rates will not increase from past years for households earning less than $400,000. “

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