IRS Set to Boost Collections by Billions Through Enhanced Enforcement

The Internal Revenue Service (IRS) is gearing up to significantly increase its collection of overdue and unpaid taxes, a development that underscores the agency’s evolving role in the American fiscal landscape. A recent analysis by the Treasury Department and the IRS, fueled by the Democrats’ Inflation Reduction Act (IRA) of August 2022, forecasts a substantial hike in tax revenues, projecting an increase of up to $561 billion from 2024 to 2034. This projection marks a significant uptick from the Congressional Budget Office’s 2022 estimate, which pegged potential revenue gains at $180.4 billion over a slightly different timeframe, thanks to the IRA’s infusion of new funding into the IRS.

This financial windfall is predicated on the IRA’s provision of tens of billions of dollars to the IRS, aiming to tighten enforcement and ensure tax compliance. Administration officials, including President Joe Biden, are leveraging these findings to bolster the President’s economic agenda as he seeks reelection, amidst ongoing debates over IRS funding.

National Economic Adviser Lael Brainard’s statement, as reported by the Associated Press, emphasizes the Biden administration’s stance that rebuilding the IRS will not only compel the wealthy and big corporations to pay their fair share but also significantly reduce the federal deficit. This narrative directly contrasts with Congressional Republicans’ efforts to slash IRS funding, which Democrats argue demonstrates a preference for allowing tax evasion over fiscal responsibility.

The political tug-of-war over IRS funding has tangible implications for the agency’s operations and the American taxpayer. While the Inflation Reduction Act granted the IRS an $80 billion boost, subsequent legislative actions have pared back this funding, with House Republicans engineering a $1.4 billion cut as part of a broader budgetary compromise. These fiscal maneuvers reflect the broader political discourse on tax policy, enforcement, and the role of government in regulating economic fairness.

Despite these challenges, the IRS is moving forward with initiatives aimed at improving customer service and cracking down on tax evasion, particularly among affluent individuals and corporations. The agency recently announced the recapture of half a billion dollars in back taxes from wealthy tax evaders, signaling a renewed focus on enforcement and compliance.

Critics, such as Rep. Jason Smith, chair of the House Ways and Means Committee, question the feasibility of the IRS’s revenue projections and express concerns over the potential impact of increased enforcement on middle- and lower-income taxpayers. However, Treasury Secretary Janet Yellen’s directive to maintain audit rates for individuals earning less than $400,000 aims to mitigate these concerns, focusing enforcement efforts on higher earners and entities.

The IRS’s efforts to bolster tax compliance come against the backdrop of declining audit rates for millionaires and large corporations over the past decade, a trend that the IRA funding seeks to reverse. With the tax gap exceeding $600 billion annually, the stakes for effective IRS enforcement are high, reflecting the agency’s critical role in sustaining the nation’s fiscal health and ensuring equitable tax compliance.