The Internal Revenue Service is working to finally bring its processes up to date to, oh, the late 20th century. Republicans want to send it back to the Stone Age.
For months, Republicans have been trying to decide what they want in exchange for raising the federal debt limit — i.e., what compensation they’ll require for not blowing up the global economy. On Wednesday, House Speaker Kevin McCarthy (R-Calif.) introduced draft legislation laying out some demands.
For the most part, his legislation still punts on exactly how Republicans would reduce spending, as they say they wish to do. The bill includes enormous, vague, across-the-board spending cuts, with exact programs affected (infant nutrition? Pell Grants? the FBI?) mostly TBD. There was at least one specific program, though, singled out for slaughter: the IRS.
See, as part of last summer’s Inflation Reduction Act, Democratic lawmakers gave the IRS $80 billion in new funding over the course of a decade. The money was appropriated for enforcement, customer service, operations upgrades and oversight. The agency desperately needed this cash infusion. Its funding had been whittled down, leaving it a shell of its former self and struggling to perform basic functions.
For instance, IRS staffing today is almost 20% below its levels in 2010, even though the U.S. population has grown, the tax code has become more complex and ever more responsibilities have been dumped on the agency. As a result, service has deteriorated and tax dodgers have been allowed to roam free. A decade ago, 93% of companies with at least $20 billion in assets were subject to audit; by 2020, that share had plummeted to 38%, according to Syracuse University’s Transactional Records Access Clearinghouse.
This new, reliable long-term funding promises to be transformative. In fact, it already has transformed the agency, in some key ways.
Last week, the IRS announced it had finally cleared the backlog of millions of unprocessed returns accumulated over the previous several years. How did it do this? The agency finally purchased technology to scan paper returns into the computer system instead of having employees manually keystroke in tax data digit by digit.
The agency was also able to answer literally millions more phone calls this year than it did last year, and cut down its obscenely long waiting times on calls (to four minutes, down from 27). Such triumphs were, again, the result of finally getting more resources: The agency recently hired 5,000 new taxpayer service agents.
“With the additional funding under the Inflation Reduction Act, the IRS made an immediate, meaningful difference to deliver the service American taxpayers deserve — on the phone, in person and online,” IRS Commissioner Danny Werfel said in a call with members of the media on Monday. “And this is just the beginning.”
Alas, Republicans are trying to ensure this is the end.
Duplicating language from their January bill to defund the IRS, the GOP’s debt-limit legislation would claw back nearly all of the Inflation Reduction Act’s as-yet-unspent IRS funding. The bulk of the cuts focus on compliance efforts to target wealthy households (those making more than $400,000) and well-heeled corporations whose audit rates had nose-dived. Other measures in the legislation would strike funding related to the creation of a direct, IRS-managed, free e-file service; operations support; and the agency’s independent watchdog, among other priorities.
Republicans claim these cuts are necessary to “protect” honest taxpayers from an alleged “army” of new IRS agents coming to harass them. This is false.
In reality, agency upgrades and investments would help law-abiding taxpayers — not only through improved customer service but also by collecting more of the revenue already legally owed by high tax cheats. That way the rest of us don’t have to chip in more tax dollars to offset their shirking.
Additionally, more sophisticated auditing technologies (e.g., digitizing more categories of returns), make it more likely that any audits conducted will be better-targeted — and less likely to draw honest people into the dragnet.
But perhaps most important, Republicans have cast this entire bill as being motivated by the need to place the U.S. government on firmer fiscal footing. And yet their plans to incapacitate the IRS would worsen the government’s deficit problems.
That’s because the IRS brings in much more revenue than it spends. The January version of the defund-the-IRS legislation would have added an additional $114 billion to deficits on net over the coming decade, according to the Congressional Budget Office. Other experts have suggested that the CBO’s estimates for the returns on investment from IRS funding are generally too conservative — implying that the effects on deficits would be even worse.
For a party supposedly devoted to law and order, the GOP has a puzzling fixation on defunding the (tax) police.
Email: crampell@washpost.com.