The GOP effort in Congress to pay for aid to Israel by cutting tax enforcement at the IRS was yet another reminder of how Republicans have tried to undercut the tax agency — as more Americans are actively not paying their taxes.
Georgia Republicans began this year by voting to claw back $80 billion approved in 2022 to bolster taxpayer services and increase tax compliance efforts, as the GOP denounced a mythical ‘army’ of tax agents.
But new numbers show why the Internal Revenue Service needs more resources, as the ‘tax gap’ — that’s the amount of money legitimately owed to Uncle Sam, but not paid by taxpayers — grew to a record $688 billion in 2021, nearly the size of the Pentagon budget.
Much of the tax underreporting is business income — either small businesses or the self-employed.
At a recent House hearing, IRS chief Daniel Werfel pointed at more wealthy individuals who don’t report all of their income.
“You’re roughly at about $200 billion (in 2021) for just those individuals who earn more than $500,000,” Werfel said.
The GOP battle to cut the IRS began in earnest after Republicans won control of Congress in 2010. And it’s had an impact.
“The audit rates of millionaires fell by more than 80 percent between 2010 and 2018,” noted the Center on Budget and Policy Priorities, as the tax gap has grown by about 75 percent.
Extra money for the IRS allowed a big change this year: the feds hired more people to actually answer the telephone when taxpayers called and started improving tax collection.
“There is a sea change taking place at the IRS in every aspect of our operations,” said Werfel, as the tax agency takes aim at high-income earners, large business partnerships, cryptocurrency, and Americans who stash money in foreign bank accounts.
This might be hard for some to accept, but cutting tax enforcement doesn’t actually save money because when you stop aggressively collecting taxes, more people cheat.
The Congressional Budget Office this week said a $14.3 billion cut in IRS enforcement (meant to pay for aid to Israel) would translate into a $26.8 billion loss of revenue.
In other words, cutting IRS enforcement increases the overall deficit because more people don’t pay their taxes in full.
But that message hasn’t gotten through to Republicans. Later this month, they’ll bring a government funding bill to the House floor which cuts $1.1 billion from the IRS budget.
It’s easy to beat up on the IRS. It’s a little harder to balance the budget.
Jamie Dupree has covered national politics and Congress from Washington, D.C. since the Reagan administration. His column appears weekly in The Atlanta Journal-Constitution. For more, check out his Capitol Hill newsletter at http://jamiedupree.substack.com
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