The Internal Revenue Service (IRS) could generate as much as $851 billion in additional revenues over a 10-year period if a supplemental funding program remains in effect, according to a new report.
According to new estimates, sustained IRA funding could ensure the IRS nets an additional $851 billion during the 10 years—$461 billion more than the previous estimate of $390 billion. IRA funding is set to expire by 2031.
The earlier estimate calculated additional revenues by only looking at likely revenues coming from increased enforcement staffing. As such, the estimate “did not present a complete picture of the revenue benefits of the innovative investments we are making.”
IRA funding will be used to enhance services to improve voluntary compliance and modernize technology while adopting analytic advances that can “dramatically improve productivity,” the report stated. These changes will also generate additional revenues for the IRS.
The funding will also be used to boost other “diversified revenue strategies” like the reporting of cryptocurrencies and digital assets. “Our research has indicated that most of the capital gains from cryptocurrency trading are not being properly reported.”
With modernization of IT systems, the agency will be able to directly access information returns from crypto exchanges, which will make enforcement more efficient. This can “dramatically increase voluntary compliance for taxes that otherwise would have been unpaid.”
The IRS also intends to leverage “behavioral science tactics,” which it says can contribute $53 billion in revenues over the decade. This includes things like reminders and “nudging.”
“This program aims to educate and prompt taxpayers well ahead of estimated tax deadlines, thereby minimizing late payments, reducing administrative burden, and removing the need for later enforcement action on low ROI tax issues,” the report stated.
During a debt-ceiling deal last year, the GOP succeeded in bringing down the amount of the funds, from $80 billion to $60 billion, which was supposed to involve two $10 billion reductions in 2024 and 2025 from the IRS’s annual appropriations.
Funding the IRS
In a Feb. 6 press release, the Treasury Department claimed that new findings of the report “show what’s at stake in proposals to repeal or reduce this historic investment in the IRS.”“A $20 billion rescission would reduce revenues by over $100 billion … The rescissions would cause IRA enforcement funding to run out in 2029—about two years earlier than it would have under the IRA as enacted—reducing the revenue raised in 2029 and subsequent years.”
With the IRA funds scheduled to end by 2031, only by extending the funding can the IRS collect the extra $851 billion in revenues by 2034 in full, it said.
“Conversely, additional rescissions of IRA resources or cuts to IRS base funding would further reduce revenue collections and could reverse taxpayer service improvements that have already been made and even endanger near-term enforcement efforts.”
It claimed that IRA investment in the IRS is necessary due to “a decade of deep funding cuts” which led to audit rates on millionaires falling by over 70 percent from 2010 to 2019 and the audit rates on large corporations to decline by more than 50 percent.
Lael Brainard, chair of the White House National Economic Council, said in a statement that the report “demonstrates that President Biden’s investment in rebuilding the IRS will reduce the deficit by hundreds of billions of dollars by making the wealthy and big corporations pay the taxes they owe,” according to Reuters.
“Congressional Republicans’ efforts to cut IRS funding show that they prioritize letting the wealthiest Americans and big corporations evade their taxes over cutting the deficit,” she said.
Rep. Jason Smith, the Republican chairman of the House Ways and Means Committee, slammed the report. He pointed out that the analysis calls for “even more IRS funding, uses pie-in-the-sky numbers, all without being straightforward about where the burdens of massive new enforcement efforts will fall.”
Providing the IRS with more funds will eventually result in more taxpayers making less than $75,000 per annum being targeted by agents for audits, he stated.
“Of the $80 billion provided to the IRS in the partisan IRA, more than half, or about $46 billion, is directed toward enforcement activities, while only 4 percent of the $80 billion … was earmarked for improving taxpayer services,” Sen. John Thune (R-S.D.) pointed out last year.
