Legislation

Watch out for a turbocharged IRS

Progressives want Joe Biden to unleash what they call “beast mode” executive power, and the Schumer-Manchin tax bill supplies the cash to turn the Internal Revenue Service into Wolverine.

The bill includes $80 billion in new funding for the tax man. Democrats claim this “investment” will yield more than $200 billion in revenue. That estimate is highly speculative, but if it’s anywhere close to right IRS auditors will soon be coming after tens of millions of Americans.

The $80 billion is more than six times the current annual IRS budget of $12.6 billion. The money will be ladled out over nine years and comes with few strings attached. The main Democratic command is for the tax agency to bring the hammer down on taxpayers. The result will be far more audits, civil suits and criminal referrals.

The main targets will by necessity be the middle- and upper-middle class because that’s where the money is. The Joint Committee on Taxation, Congress’s official tax scorekeeper, says that from 78% to 90% of the money raised from underreported income would likely come from those making less than $200,000 a year.

The IRS knows the superwealthy employ lawyers and accountants who make litigation time-consuming and risky. It also knows that Democrats would howl if the agency pursues fraud in the earned-income tax credit program, despite what the IRS has estimated are $18 billion in improper payments each year.

A particular audit target will be “pass throughs” including Subchapter S businesses that file under the individual tax code. Many of these are small businesses that will settle with the IRS rather than fight and endure years of costly litigation.

Despite all this new money, Americans shouldn’t expect better IRS service. The agency in the 2022 filing season answered a mere 10% of its phone calls. The Taxpayer Advocate Service revealed in June that as of May 31 the IRS was still sitting on 21.3 million unprocessed paper tax returns, with millions of taxpayers “waiting six months or more to receive their refunds.” Yet the Schumer-Manchin bill devotes only $3.2 billion for “taxpayer services.”

The new wave of audits will hit taxpayers even as tax revenue as a share of GDP is back close to its historic norm of 18.5% and may be going higher as corporate and individual tax revenue soars. Tax receipts were up 25% in the first nine months of fiscal 2022 after rising 18.3% in fiscal 2021.

The federal government isn’t starving for revenue. Congress wants more tax revenue because it can’t control its appetite for spending. That’s why it wants a tax agency in beast mode.


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