When Democrats passed the Inflation Reduction Act (IRA) over the summer, they were expecting it to be a major factor in their favor in the upcoming midterm elections.
They probably weren’t expecting that Republicans would also see the IRA as an opportunity to help win elections.
In recent weeks, Republican candidates for the House and Senate have spent millions on ads targeting the IRA, in which they single out one piece of the bill in particular – increased IRS funding.
The IRA allocated $80 billion in desperately-needed funding to a resource-starved IRS, with a large portion of this funding designated specifically for enforcement against wealthy criminal tax cheats. This is unequivocally a good thing. There is no reason rich people should be able to break the law by not paying their taxes and get away with it. But that’s exactly what Republicans are running on.
In ad after ad in races across the country, Republican candidates are lying about this increased IRS funding. They claim that IRS agents are coming for ordinary voters and that thanks to Democrats, there will be a stadium full of agents going after middle-class families, that 87,000 armed agents are going to be unleashed on honest Americans.
It’s all a lie. The only people the IRS will be going after are rich people who are breaking the law. But Republicans are happy to fan the flames of conspiracy to win votes no matter the cost. In fact, the ads are so over the top and inflammatory that the union for IRS employees is worried about the safety of its workers.
They can’t get away with these lies. A well-functioning IRS means better and faster service for most taxpayers and consequences for rich people who commit criminal tax fraud. This is a win for regular, law-abiding Americans but bad news for wealthy criminal tax cheats, and voters deserve to know the truth.
This week, we’ll spotlight why it’s important for us to fund the IRS, and why the Republican stance is terrible for everyone but tax-evading wealthy criminals.
Historically Underfunded
This new funding for the IRS could not be more urgent. Years of budget cuts from Republican Congresses have left the agency in a deplorable state. Between 2010 and 2018, the IRS’s annual budget was cut by $2.9 billion, an intentional act of sabotage that cost the agency almost a fifth of its staff. This adds up to a 20% funding cut for the agency over the last ten years. As a result, the ultra-rich have been getting away with paying nothing because the IRS doesn’t have the resources to audit them properly.
Because the IRS lacks the experienced investigators needed to go after the complicated finances of wealthy people, audits on the rich have dropped dramatically. In 2011, more than 12% of those making over $1 million were audited annually, but by 2019 that was down to 3.2%. But because audits still needed to happen, the IRS focused more attention on people with simpler finances – poor people. In fact, in recent years, the IRS has audited workers making less than $25,000 five times more often than all other filers.
The Tax Gap
The results of the IRS’s inability to audit the rich have been staggering. Last week, the Treasury Department released a new estimate of the tax gap – the discrepancy between taxes owed and taxes actually paid – which showed that the gap increased to $496 billion a year. This gap is so large that the revenue lost to the tax gap is equal to all income taxes paid by the bottom 90% of American earners combined.
It’s clear that criminal tax evasion is no small issue: half a trillion dollars is a lot of money, and it’s getting worse. Between 2011-2013 and 2014-2016, the total amount of taxes owed but not paid increased by more than 23 percent.
Unsurprisingly, this isn’t a universal problem – it’s a rich person problem. Some estimate that up to 70% of the tax gap is a result of the wealthiest 1% of American filers not paying what they owe. According to the Treasury report released this week, a more conservative estimate still approximates that the top 20% of American filers are responsible for nearly 80% of the tax gap.
The astronomical size of the tax gap is what makes increased IRS funding a good investment – every dollar spent on IRS enforcement more than pays for itself. The Congressional Budget Office has estimated that increasing IRS tax enforcement through this new funding would raise $124 billion in new revenue. That’s why cutting the IRS budget in the name of reducing government spending or “fiscal responsibility” is ridiculous. The most responsible thing our government can do is to spend a bit of money to take in a lot more from wealthy criminal tax evaders.
Republican Strategy
Even though increased IRS funding is a clear win for the American people, Republican opposition to it has only gotten nastier. They’re banking on the idea that voters dislike paying taxes enough that anything to do with the IRS is a political loser. Republicans have made it clear that if they take back the House in the midterm elections, they will make it their number one priority to reverse the funding set aside for the IRS for auditing the rich, closing the tax gap, and streamlining the tax return process. This would continue the conservative trend of devaluing tax enforcement that has put the IRS in the position it’s in right now, in an open endorsement of allowing millionaires and billionaires to commit tax fraud without consequences.
Helping criminal tax cheats isn’t an accidental part of their platform, it’s the entire point. Their party is largely dependent on billionaire tax cheats who would like to continue getting away with breaking the law. Several big-dollar Republican donors have been caught participating in tax fraud. Allen Weisselberg, the former Chief Financial Officer at the Trump Organization, recently pled guilty to a 15-year tax fraud scheme. And prolific GOP donor Robert Brockman was charged with running the biggest tax fraud scheme in U.S. history just last year.
No matter which side of the aisle you vote on, you probably agree that rich people should be held accountable for paying the taxes they owe. The Republican party is not just failing to live up to that ideal: they’re actively aiding and abetting a literal crime. There’s simply no other way around it – the Republican misinformation campaign about IRS funding protects criminal tax evaders from accountability under the law. And it’s not a coincidence that those criminals happen to be their friends and donors.
The two competing sides on this issue could not be more different. Democrats want to fund the IRS, so American taxpayers can get the country’s money back from the people who stole it. Republicans want to defund the IRS so the people who stole the country’s money can keep it and give it to them for their campaigns. Only one side deserves the people’s trust.
Background Reading and Resources
IRS updates tax gap estimates; new data points the way toward enhancing taxpayer service, compliance efforts | IRS
The Case for a Robust Attack on the Tax Gap | U.S. Department of the Treasury
Wyden Statement on IRS Tax Gap Report | U.S. Senate Finance Committee
U.S.’s wealthiest 1% are failing to pay $160bn a year in taxes, report finds | The Guardian.
Top 1 Percent Evade $163 Billion a Year in Taxes, Treasury Finds | The New York Times
Tax gap rises as IRS finds amount of unpaid taxes is increasing | The Hill
The top 1% is hiding more than 20% of their earnings | The Washington Post
