IRS directed to use funds from newly enacted law for enforcement against rich tax cheats

Treasury Secretary Janet Yellen has sent a memo to IRS Commissioner Charles Rettig directing his agency to develop a plan for updates and improvements to be funded with money allocated under the Inflation Reduction Act, which President Joe Biden signed into law on Aug. 16.

The new law, which passed Congress over the objections of all Republican members, sends nearly $80 billion over the next 10 years to the IRS.

Yellen said in the memo, obtained by the Associated Press, that the improvements should be designed to “end the two-tiered tax system, where most Americans pay what they owe, but those at the top of the distribution often do not.” She said that funds should be invested in training IRS employees “so they can identify the most complex evasion schemes by those at the top.”

“These investments will not result in households earning $400,000 per year or less or small businesses seeing an increase in the chances that they are audited relative to historical levels,” Yellen wrote, a direct rebuke to falsehoods spread by Republicans.

Leaders of the GOP, including House Minority Leader Kevin McCarthy and Texas Sen. Ted Cruz, have falsely asserted that the new funds would be used by the agency to hire thousands of new agents who would target middle-class earners.

According to a September 2021 report from the Treasury Department, the gap between the amount of taxes owed to the U.S. government and what is collected is about $600 billion annually, totaling nearly $7 trillion over the coming decade. The report’s author, Deputy Assistant Treasury Secretary Natasha Sarin, wrote:

Today’s tax code contains two sets of rules: one for regular wage and salary workers who report virtually all the income they earn; and another for wealthy taxpayers, who are often able to avoid a large share of the taxes they owe. … [E]stimates from academic researchers suggest that more than $160 billion lost annually is from taxes that top 1 percent choose not to pay. … For the IRS to appropriately enforce the tax laws against high earners and large corporations, it needs funding to hire and train revenue agents who can decipher their thousands of pages of sophisticated tax filings. It also needs access to information about opaque income streams—like proprietorship and partnership income—that accrue disproportionately to high-earners.

Sarin told NPR, “By beefing up the IRS’s capacity to go after wealthy tax cheats, you’re going to be able to collect at least $400 billion of that over the course of the next ten years, and I suspect substantially more.”

As the AP noted in a story in September 2020, one notorious example of the IRS’ inability to collect taxes from the ultrawealthy is former President Donald Trump, who, despite describing himself as a multibillionaire, paid no income taxes in 11 out of 18 years for which his tax returns were obtained by the New York Times.

Research from Syracuse University published in March 2021 showed that for fiscal year 2020, fewer than 2% of millionaires were audited by the IRS. Most of the country’s largest corporations — companies with over $20 billion in assets — also avoided audits that year.

The minuscule number of audits has been part of a trend for years as the number of IRS revenue agents decreased from 14,749 in 2010 to 8,350 in 2020.

The lack of enforcement coincides with the Republican takeover of the House of Representatives in the 2010 “wave” election. Republicans began attacking IRS funding, fulfilling long-held conservative policy goals by cutting the agency’s budget by 20% and creating work backlogs when it was no longer able to fulfill the basic functions of processing returns and enforcing the law.

The GOP has continued to hobble the IRS and prevent it from collecting revenue from the wealthy.

In September 2021, House Republicans attempted to stop the IRS from creating new rules that would allow it to crack down on tax evasion. Republicans in Congress voted against Biden’s Build Back Better plan, which included funding to improve the functioning of the IRS, and simultaneously complained about the problems their gutting of the agency’s budget had caused.

In both the House and the Senate, Republicans unanimously voted against the Inflation Reduction Act and its IRS provisions, despite the fact that the revenue collected from wealthy tax cheats by an improved IRS could be used for vital government services such as health care, education, and the armed services.

Published with permission of The American Independent Foundation.