(The Hill) — Republicans are coming under fire for their rhetoric over $80 billion in funding for the IRS including a massive climate, tax, and health care bill that Democrats in Congress are sending to the White House.
The funding, over 10 years, is intended to help the IRS enforce various provisions in the Inflation Reduction Act, which would raise more than $700 billion in new revenue by instituting a 15% corporate minimum tax, taxing stock buybacks, and extending a cap on deductions for business losses, in addition to helping the IRS enforce existing tax law. Of the $80 billion, more than half would go to increased enforcement, like audits.
Republicans, who have nursed grievances over the IRS going back to the Obama administration that was inflamed further by fights over former President Trump’s tax returns, have taken aim at the funding, arguing it amounts to creating a new army of IRS agents to go after taxpayers.
But the IRS, Democrats, and outside experts all say the new enforcement money will mostly allow the IRS to focus on audits of the wealthy.
“Contrary to the misinformation from opponents of this legislation, small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited,” Treasury Secretary Janet Yellen wrote to IRS Commissioner Charles Rettig in a letter dated Aug. 11.
In an appearance on “Fox and Friends” this week, Sen. Chuck Grassley (R-Iowa) questioned whether the IRS was ready to send in armed units of agents into small Iowa businesses.
“Are they going to have a strike force that goes in with AK-15s already loaded, ready to shoot some small business person in Iowa with these, because I think they’re going after middle class and small business people because they think that anybody that has pass-through income is a crook, and they aren’t paying their fair share, and we’re going to go after them,” he said.
In using the phrase “pass-through,” Grassley was referring to owners of certain types of companies, like partnerships and sole proprietorships, that allow for income to be reported on the tax returns of their owners. The Democrats’ Inflation Reduction Act extends a limitation on the ability of pass-throughs to use losses to write off costs like salaries and interest. The limits were initially set up by the Trump administration’s 2017 Tax Cuts and Jobs Act.
Democrats said that such views should be considered ridiculous.
“The incendiary conspiracy theories Republicans are pushing about armed IRS agents are increasingly dangerous and out of control,” Senate Finance Committee Chairman Ron Wyden (D-Ore.) said in a statement.
“High-ranking Republicans, including the former chair of the Finance Committee, are saying shockingly irresponsible things,” he continued, seeming to refer to Grassley’s remarks. “It’s unbelievable that we even need to say this, but there are not going to be 87,000 armed IRS agents going door-to-door with assault weapons. This is funding for answering phone calls and upgrading computer systems. I would hope that House Republicans act responsibly today as the House considers the Inflation Reduction Act.”
Grassley’s office fired back at the statement from Wyden. A Grassley aide said in a statement to The Hill that “Democrats’ partisan bill includes an additional $80 billion to beef up IRS enforcement, including hiring an additional 87,000 IRS employees, which will undoubtedly result in more audits targeting American small businesses — at their expense. Unfortunately, Democrats’ focus is on IRS enforcement rather than providing badly needed tax services. It’s shockingly disingenuous to argue all of these new agents will only be answering phone calls.”
Fact-checking websites have also taken aim at some of the rhetoric and online chatter fueling Republican arguments about the increased tax enforcement budget.
The Poynter Institute, a Florida journalism school and media studies center, called claims that the new funding would militarize the IRS “outlandish.”
“One outlandish claim suggested those new IRS agents might soon be coming to your door armed to the teeth to collect your taxes, if not for a dramatic early morning intervention by ‘Delta Force’ soldiers,” fact-checker Jeff Cercone wrote for the Poynter Institute’s Politifact website about a false news story that came out prior to Grassley’s appearance on “Fox and Friends.”
Democrats have long argued the IRS needed a major funding boost as audit rates and hiring levels dipped over the last decade. They say the lack of audits has benefitted rich taxpayers, a finding buttressed by a report on tax compliance released in May from the Government Accountability Office, the government’s internal watchdog.
The report found that in recent years, “audit rates have dropped for all income levels — with audit rates decreasing the most for taxpayers with incomes of $200,000 or more.”
Findings like this one have caused Democrats to argue for more enforcement at the IRS and to call out Republicans for getting in the way.
“For decades, Republicans have starved the IRS of funding, and now American taxpayers are paying the price,” House Ways and Means Committee Chairman Richard Neal (D-Mass.) said in a statement back in February. “The IRS needs greater support to carry out its most essential functions, like processing tax returns, enforcing the tax code, and closing the tax gap. Without resources from Congress to update its woefully out-of-date technology, the agency simply cannot operate at the level American taxpayers expect.”
Republican lawmakers have repeatedly argued against providing more money for the IRS.
“This additional money for the IRS to target all Americans is absolutely wrong. It will target our families, it’s going to target our small businesses, and it’s going to go after them to get them to pay more money,” Sen. Rick Scott (R-Fla.) said back in December 2021 about the Democrats’ unsuccessful Build Back Better legislation, which also proposed an IRS enforcement funding boost.
Experts say it’s not entirely clear how the IRS will actually use its new funding.
The bill’s “language was pretty generic,” former Congressional Budget Office tax analyst Janet Holtzblatt said in an interview. “It doesn’t really get into the specifics about how the money aligns to a particular task. It certainly doesn’t say how many employees there will be, how much will be spent on computers, how much will be spent on rent. But all of that will be covered.”
Republicans have made the argument about 87,000 new tax collectors targeting the middle class by pointing to a Treasury report released in May 2021 that said that $80 billion would allow for 86,852 new full-time employees at the IRS. Experts say they wouldn’t all be auditors.
“They didn’t give details on how they came up with this very precise number,” Janet Holtzblatt said. “But they didn’t ever say that those were all going to be auditors. The report said that part of the new workforce would be customer service reps to help navigate issues.”
Republicans have locked on to the 87,000 figure, sensing a political opportunity.
“I guarantee you citizens in every one of our states, if you ask them, what do they want, they don’t want 87,000 new IRS agents,” Sen. Ted Cruz (R-Texas) said after proposing an amendment to strike the additional funding for the IRS from the Democrats’ bill.
The figure of 87,000 new auditors has also been criticized by fact-checking websites. Washington Post fact-checker Glenn Kessler called it “wildly exaggerated” in giving House Minority Leader Kevin McCarthy (R-Calif.) a rating of “three Pinocchios” for the claim.
Republicans have also said the language in the bill doesn’t mean the IRS will just go after corporations and the wealthy.
“They’re being created to audit you,” Cruz said before pointing to an estimate from Republicans on the House Ways and Means Committee that claimed 700,000 of the 1.2 million new audits that could be conducted because of the new funding will fall on taxpayers making $75,000 or less.
But the Treasury Department and the IRS have both made assurances that rich people and corporations, whose audit rates have decreased more sharply in recent years relative to regular Americans, are the intended targets.
The IRS criminal investigation division (IRS-CI), who are federal law enforcement officials like the FBI and U.S. Marshals, told The Hill that they are not going after any one segment of American taxpayers other than people who cheat on their taxes.
The division said in a statement to The Hill that its “special agents are sworn law enforcement agents investigating tax crimes and criminal activities that may include gangs, drug dealers, and other dangerous criminals. In order to carry out their daily duties, such as search warrants and arrests, CI special agents carry firearms. They also receive continuous annual training in order to carry firearms.”
In an interview with The Hill, IRS-CI spokesperson Anny Pachner said that “the IRS Criminal Investigation Division has about 3,000 employees. About 2,100, or roughly 2,000, of those are special agents, federal law enforcement agents. They investigate financial crimes and violations of the U.S. tax code. Our agents go after criminals that are cheating taxpayers and the federal government. That’s their work, to investigate those crimes, make sure they’re stopped, and return the funds back to victims.”