With financing under the Inflation Reduction Act (IRA), the IRS stated it is ready to collect hundreds of billions of dollars more in tax revenue by pursuing past-due and unpaid taxes, substantially more than was originally projected.
(Photo : by BRENDAN SMIALOWSKI/AFP via Getty Images)With financing under the Inflation Reduction Act (IRA), the IRS stated it is ready to collect hundreds of billions of dollars more in tax revenue by pursuing past-due and unpaid taxes, substantially more than was originally projected.
Recent estimates have emerged amidst concerns raised by certain Republican lawmakers regarding potential cuts to IRS funding, citing fears of increased audits targeting middle-class taxpayers. However, both IRS and Treasury officials have reassured the public that the agency's primary focus remains on identifying wealthy tax evaders and businesses with outstanding tax liabilities.
National Economic Adviser Lael Brainard emphasized the significance of President Biden's proposed investment in IRS rebuilding, asserting that it would lead to substantial deficit reduction by ensuring that affluent individuals and large corporations fulfill their tax obligations.
According to a recent report, the Congressional Budget Office projected in 2022 that additional IRS funding, as proposed by the IRA, could potentially generate $180.4 billion in increased revenues from 2022 to 2031. The IRS has since revised its estimates, suggesting that with restored, enhanced, and diversified funding, potential revenues could soar to as high as $851 billion from 2024 to 2034.
This updated assessment is being leveraged by administration officials to advocate for President Joe Biden's economic agenda, particularly as he gears up for reelection. It comes at a time when the IRS continues to grapple with ongoing threats to its funding.
The IRS received an influx of $80 billion in funding under the Inflation Reduction Act. However, the debt ceiling and budget cutbacks package agreed by Congress this summer included a $1.4 billion cut to the IRS, thanks to the efforts of House Republicans. A different deal required the IRS to shift an extra $20 billion to other non-defense projects over the course of the following two years.
In an attempt to halt the cuts, the agency has now made an effort to demonstrate how it is using the remaining funds. Jan. 29 marked the launch of new customer care initiatives, and earlier this month the IRS declared that it had recovered half a billion dollars in overdue taxes from wealthy tax evaders.
One of the main issues facing the tax collecting agency is making sure that individuals pay their taxes. According to Treasury's Deputy Assistant Secretary for Tax Analysis Greg Leiserson, the audit rate on major firms declined by more than 50% and the audit rate on millionaires by more than 70% between 2010 and 2019. Funding from IRAs "is enabling the IRS to reverse this trend," according to Leiserson.
The IRS reports that the tax gap, or the difference between taxes paid and taxes owing, has increased to almost $600 billion a year.
