One important provision in the Inflation Reduction Act provides an extra $80 billion for the Internal Revenue Service. This has provoked loud squawks from those who see the agency as a villain.
The IRA, signed in mid-August by President Biden, is a skinny version of the Build Back Better bill. It also contains a significant investment for fighting climate change. It continues premium subsidies under the Affordable Care Act, aims to lower costs of prescription drugs, and creates a 15 percent minimum tax on corporations.
The Act’s boost for the IRS has rekindled a lot of loose talk about the agency, which has been underfunded and under-equipped for decades. The Treasury Department says increased enforcement (tax audits) could raise as much as $200 billion in additional tax revenue over ten years.
Contrary to rumors, common folk are not targets. New IRS scrutiny will focus on big business, and individuals earning more than $400,000.
Wild stories have been stirred up – visions of armed agents raiding mom and pop stores, pensioner shakedowns, a looting the middle-class. It’s an old and cherished fear tactic that dates almost to the bureau’s origins, in1862, when Washington needed money for the Civil War. In 1913 a constitutional amendment created the federal income tax; the Bureau of Internal Revenue was established to account for collections. In 1953 it was renamed the Internal Revenue Service.
The agency’s history is littered with bickering. Tax collecting has never been a cheerful venture. But as any good business manager knows, profitability does not lie in shutting down the department that generates revenue and collects the money. The IRS collects funds that keep the country going and, for that matter, keeps Kansas flush with federal aid.
IRS audit rates have fallen overall in recent years, especially for the wealthy. The Government Accountability Office said that in 2010 the IRS audited 21 percent of tax returns reporting over $10 million in income; in 2019, four percent. For those making between $5 million and $10 million, audits fell from 13.5 percent to 1.4 percent.
It’s cheap politics to pander to those who loathe the IRS because they don’t like paying taxes, or are trying to avoid them, or who don’t want to get caught cheating on them.
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Nearly every problem affecting the IRS today can be traced to a lack of funding. Penny-pinching and IRS budget cuts have prompted equipment deficits, a shortage of agents, an increase in employee turnover. Technology at the IRS is at least 20 years behind times, causing ever-growing backlogs. The agency lacks experienced employees and managers. This leads to a decline in revenue collections coupled with increases in unpaid taxes. Congress hasn’t learned that it is dull-witted to bite the hand that feeds us.
Today’s assaults on the IRS have roots nearly a decade back, when the agency took a special interest in the TEA party’s tax exempt status. The Taxed Enough Already party, a loose-knit coalition of anti-government and anti-tax zealots, had sought 501(c)4 tax-exempt status to hide the names of sponsors for its local organizations. The IRS wanted an explanation.
The classification 501(c)4 is for organizations engaged exclusively or primarily in social welfare activities – homeless shelters, food banks, homes for battered women, and so forth.
The TEA party was not about social welfare. Nor are its shady cousins with hidden financial footings. The dark money crowd is about politics, and far more eligible for classification as political action groups ‒ the kind that often peddle malice and hostility, not assistance and welfare.
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Given their platforms of mistrust and loathing, the loose-cannon cults of the far right and ultra-left are rarely moved by fact and law, especially when the law intends for their political donors to disclose themselves. They prefer to hide their benefactors, and Congress lets them.
Is it the IRS’s fault that certain groups don’t want us to know who’s paying their bills? That’s a big issue: the donors. Add to this the tax-skating of corporations and wealthy tax fugitives, all driving up the costs of government.
Instead of fixing the process, Congress fixes the system. Attempts to correct this problem are met with tirades about injustice and abuse of power.
Healing the IRS and fixing tax discrepancies would put this heated issue away on a shelf, an otherwise admirable thing. But members of Congress have learned that while fixing things might gain a few votes, it would cost them a lot of priceless attention.
The anti-taxers thrive on attention. And money. Congress prefers to keep the defamations out front on the big stage while the enablers stay in the shadows back stage, curtain pulled.
