Top Democrat lawmakers are asking the Internal Revenue Service (IRS) to take a closer look at wealthier households and businesses after receiving a funding increase last year.
Key Details
- Senator Elizabeth Warren (D-MA) and 24 fellow Democrat senators are asking the IRS to increase its audits now that the agency has increased funding.
- In a letter to the IRS, the senators asked that the agency focuses on larger corporations and households earning more than $400,000 annually.
- “Billionaires cannot avoid scrutiny by using tax-avoidance strategies to report low incomes,” the senators’ letter says.
Why it’s news
President Joe Biden and many in the Democratic Party maintain that the wealthiest Americans do not pay enough in taxes. In March, the president proposed the Billionaire Minimum Income Tax that would require the wealthiest Americans to pay at least 20% on all income. In addition, he says, the wealthiest are able to take advantage of loopholes to reduce their tax bill.
The overall number of audits decreased from 0.9% to 0.25% from 2010 to 2019. And an analysis from Syracuse University found that households with incomes below $25,000 were five times more likely to be audited. Reports from the Government Accountability Office say that low IRS staffing can explain the disproportionate audits.
A big reason why is that there are many mistakes made in claiming things like the Earned Income Tax Credit, American Opportunity Tax Credit, or Additional Child Tax Credit—all geared to low-income filers.
As the report notes: “This group of taxpayers has historically been targeted not because they account for the most tax under-reporting, but because they are easy marks in an era when the IRS … doesn’t have the resources to assist taxpayers or answer questions.”
In 2022, IRS budget cuts resulted in 1,400 staffers examining 164 million taxpayers’ tax returns. Low staffing resulted in the agency relying on automation to move through returns more quickly, Forbes reports.
The Inflation Reduction Act passed last year included an $80 billion increase in IRS funding. The Congressional Budget Office expects the IRS to bring in another $204 billion in revenue as a result.
Last year, 626,204 individual tax returns were audited out of the 164 million income tax returns filed.
To be clear, the wealthy are paying taxes. The Tax Policy Institute reports that in 2019, 68% of all federal income tax collected by the IRS came from those in the top 20% of income earners. And, on average, the top 1% of income earners pay 29% of their earnings in federal income tax and the top 20% pay 24%.
Backing up a bit
Last August, Treasury Secretary Jane Yellen told the IRS not to increase middle-class audits.
The Inflation Reduction Act includes funding for an increase of 87,000 new IRS hires. Some Republican members of Congress have raised concerns that additional funds for the IRS budget could result in more audits on middle-class families.
To quell concerns, Secretary Yellen wrote a letter to the IRS asking that the new funds not be used for auditing middle-class families. Instead, it is implied, to go after the wealthy.
“Specifically, I direct that any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels,” she wrote. “This means that, contrary to the misinformation from opponents of this legislation, small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited.”
