U.S. Democrats are trying to beef up the Internal Revenue Service. Again. A new reconciliation package includes $80 billion in funding for the IRS and many are calling this an attempt to “weaponize the IRS.”
That is $80 billion of your tax dollars meant to police your tax reporting. How do you feel about that?
The current operating budget of the IRS is about $12.6 billion per year. The $80 billion will be divided up over nine years so that gives the IRS an extra $8.9 billion per year. According to the Wall Street Journal, “the bill earmarks $45.6 billion for ‘enforcement,’ including ‘litigation,’ ‘criminal investigations,’ ‘investigative technology,’ ‘digital asset monitoring’ and a new fleet of tax-collector cars. The result will be far more audits, civil lawsuits and criminal referrals.
And what will the return on investment be for all of that? The bill estimates that all of this tax policing will bring the U.S. up to $200 billion in revenue. But not from the super wealthy. According to the Journal, “The Joint Committee on Taxation, Congress’s official tax scorekeeper, says that from 78% to 90% of the money raised from under-reported income would likely come from those making less than $200,000 a year. Only 4% to 9% would come from those making more than $500,000.”
Why? Because wealthy people are harder to litigate. They have good tax lawyers and solid tax strategies and they are typically ready to answer complicated questions about their taxes. The data backs that up: The IRS won only $1.7 billion of the $4 billion it litigated in 2019, meaning more people won than lost against the IRS.
But small businesses don’t have the time or money to litigate and would instead settle up when the taxman knocks.
If the IRS is beefing up, will taxpayers at least get better service? Not likely. This year, the IRS only answered 10% of its calls and is approximately 21.3 million returns behind. The new bill only sets aside $3.2 billion for “taxpayer services.”