IRS crackdown on wealthy tax cheats is working better than expected

When Democrats in Congress passed the Inflation Reduction Act in 2022, the nonpartisan Congressional Budget Office predicted that its $80 billion investments in hiring and modernization at the Internal Revenue Service would bring in $180 billion in additional revenue already owed by wealthy taxpayers over a decade. A new analysis conducted by the U.S. Department of the Treasury and the Internal Revenue Service estimates that figure could in fact be as high as $561 billion.

According to the report, earlier analyses looked only at the direct impacts of additional enforcement. “The approach ignored many activities that will influence revenue, including enhanc­ing services to improve voluntary compliance, modernizing technology, and adopting analytic advances that can dramati­cally improve productivity,” its authors wrote. “It also ignored the deterrence effect of compliance activities on taxpayers’ behavior.” 

The Inflation Reduction Act, which boosted federal investment in energy and climate change infrastructure, extended health insurance subsidies through the Affordable Care Act, and capped the out-of-pocket costs Medicare beneficiaries pay for prescription drugs and insulin, passed without a single vote from Republicans in the House of Representatives and the Senate. It was funded in part by a crackdown on corporations and on individuals making more than $400,000 annually who do not pay what they owe in federal taxes. 

Many Republican opponents of the law seized on the $80 billion for the IRS, falsely claiming it would be used by President Joe Biden to create a massive army of 87,000 armed agents to harass working families. A January 2023 CNN fact check traced this claim to a 2021 Treasury Department report that noted that the funds could enable 86,952 full-time employees to be hired over a decade; however, not all of those hired would be agents, and many would replace the 52,000 IRS employees expected to retire by 2028.

Treasury Secretary Janet Yellen ordered in August 2022 that none of the new funds be used to increase the share of audits of small businesses or families earning below $400,000. She predicted a month later that increased technological infrastructure would actually mean audit rates for honest taxpayers would decline. 

Still, after winning a narrow House majority in the 2022 election, Republicans attempted to repeal the IRS funding entirely; their bill passed in the House along party lines, but has not gotten a vote in the Democratic-led Senate.

Reps. Scott Fitzgerald, Mike Gallagher, Glenn Grothman, Bryan Steil, and Tom Tiffany all voted against the Inflation Reduction Act, as did Sen. Ron Johnson. 

“Today the House voted on whether or not we ought to hire 87,000 new IRS agents to come after average Americans,” tweeted Tiffany at the time. “I voted NO.”

“The IRS would more than double in size, unleashing 87,000 new enforcement agents on American families,” warned Johnson in a press release. “This massive increase of government intrusion would result in the IRS employing more bureaucrats than the Pentagon, State Department, FBI and Border Patrol combined.”

All five, plus first-term Rep. Derrick Van Orden, voted in January 2023 for the bill to rescind the IRS funding.

The IRS has already collected about half a billion dollars in additional revenue previously owed by 1,600 millionaires since the Inflation Reduction Act went into effect. 

As part of 2024 debt ceiling and budget compromises, both parties approved IRS funding cuts of $20 billion, which will likely reduce the total revenue recovered. The new analysis estimated that if this funding were restored, revenue could increase by up to $561 billion in 2024-2034. 

The Inflation Reduction Act’s IRS funding was set for 10 years. If Congress votes to renew the IRS funding beyond that, the report estimates, the total additional revenue might be another $290 billion, reaching a total of $851 billion by 2034.