The $80 Billion Question: What Does the IRS Do With All Its New Money? – POLITICS | Vette Leader

Democrats call that absurd.

“It’s incredible that we have to say this at all, but it’s not going to be 87,000 armed IRS agents with assault rifles going door to door,” said the Senate Finance Committee chair Ron Wyden (D-ore.).

To break the rhetoric, here are five things you should know about the $80 billion in IRS funding contained in the recently approved Democrats Health, climate and tax law.

An auditor on every doorstep?

The Biden administration plans to use the money to hire 87,000 people, a hiring frenzy that Republicans have warned of a gathering army of tax collectors.

Republicans take that number from a spreadsheet buried in a Treasury Department report released last year on its plans for the agency, but here’s the thing: It doesn’t really say how many auditors it plans to hire.

Management was very specific about how many people they planned to hire each year, but didn’t provide many details about what all those people would do.

Many will certainly consider returns. That was a big focus for Democrats, and Congress allocated more than half of the IRS money — $46 billion — to strengthen enforcement. (Approximately 31,000, or about 40 percent, of the IRS’s current employees are classified by the agency as “audits and collections.”)

But management also wants to do all sorts of other things, like improve customer service, which means hiring across the agency. It hasn’t yet decided how many more accountants it needs, said Natasha Sarin, the agency’s tax policy and enforcement adviser.

Who is being audited

Republicans say all of these people will inevitably mean more audits for the average American. Democrats scoff, saying they’re only interested in high-end tax evasion by the rich and big corporations. And they promise not to increase exam rates for those earning less than $400,000.

Democrats had included relevant provisions in their legislation, though they were scrapped by the Senate lawmaker in violation of the chamber’s arcane rules about what sorts of things can go into so-called reconciliation bills. That prompted the government to release a letter from Treasury Secretary Janet Yellen on Wednesday, in which she pledged that “audit rates for households earning less than $400,000 will not increase from what they have been in recent years.”

That could be difficult at times. There would likely be instances where the agency doesn’t really know how much someone is making until they’ve been audited. That promise could also complicate a separate effort by the agency to improve tax collection among people who own cryptocurrencies.

And it’s unclear what the government means by “relative to recent years”. Audit rates have fallen in recent years thanks to tight budgets and the coronavirus pandemic, and the administration may not want to be tied to those reduced rates.

In any case, it’s worth noting that very few average Americans are audited — just 0.1 percent of those who made between $75,000 and $100,000 in 2019. The department releases a lot of data on exactly who is being tested, so if middle-class exams suddenly skyrocket should the numbers show.

Is 87,000 a lot?

It certainly looks like it compared to the agency’s current headcount, which was 78,661 last year, according to the IRS. However, it looks smaller compared to the number of staff the IRS used to have.

The workforce has been shrinking for years. In 1992, the IRS had 117,000 employees – 38,000 more than today. Back then, of course, the agency was dealing with fewer taxpayers (the US population has grown nearly 30 percent since 1992).

Administration also says the increase isn’t as big as it might seem because it expects a wave of retirements at the agency in the coming years. The workforce is disproportionately older, thanks to budgets that have depressed hiring in recent years.

Sarin said she expects 50,000 employees to leave over the next five years. Many of the 87,000 employees will replace the current ones. Agency officials don’t yet know what the ultimate workforce would be under their plan, she said.

Must spend money to make money

Eighty billion dollars is a lot, but experts say it should be a moneymaker for the government because auditors bring in far more tax revenue than it costs to hire them.

Exactly how much is debatable.

The bipartisan Congressional Budget Office expects $204 billion in additional revenue over the next decade, giving the government a $124 billion lead. However, these estimates are uncertain when you factor in things like the length of time people are hired and the average length of audits.

Management believes it could be more. Democrats had campaigned against CBO over this, arguing that the scorekeeper underestimated the likely savings because lawmakers said many tax scoffs would be deterred from cheating by a newly empowered tax agency.

What happens next?

It’s not exactly clear how the IRS intends to spend the money.

There were provisions in the legislation that directed the agency to submit a report to Congress on what it intends to do with the money within six months. Lawmakers had also required quarterly updates and provided a $100,000-per-day fine for late reports.

But these provisions were also deleted by the parliamentarian. All that’s left in the bill are the general spending categories — like the $46 billion for enforcement. The IRS is still working on a spending plan that it intends to release in the coming months, Sarin said.

In addition, President Joe Biden must decide who he wants to lead the IRS. Commissioner Chuck Rettig’s term ends in November. The administration has considered nominating him again, although some Democrats in Congress want him to go.

Approval of the $80 billion will give lawmakers something else to consider – whether they believe Rettig is the right person to lead an agency overhaul.

Finally, it’s worth noting that despite the cash injection, things won’t change overnight. The IRS must not only develop its spending plan, but also implement it.

Hiring could be slow, for example, due to the government’s laborious processes and the country’s extremely low unemployment rate of 3.5 percent, which could make it difficult to fill vacancies. The Democrats had included provisions in their bill that would have removed some of the hiring red tape and allowed the IRS to pay people more, but those, too, were beaten by the House of Representatives.

Of the $80 billion, CBO projects the IRS will actually spend just $5 billion more over the next year. Most of the money won’t go out the door for years to come.

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