In its first vote on legislation, the new Republican-controlled House approved a bill Monday that would rescind nearly $80 billion for the Internal Revenue Service – with key GOP lawmakers making the exaggerated claim that the money would be used to hire 87,000 auditors who will target hardworking Americans.
“House Republicans just voted unanimously to repeal the Democrats’ army of 87,000 IRS agents,” tweeted speaker Kevin McCarthy after the vote.
“This was our very first act of the new Congress, because government should work for you, not against you,” he added.
But Democrats approved the $80 billion in funding last year as part of the sweeping Inflation Reduction Act, intending to support the troubled IRS crack down on tax cheats and provide better service to taxpayers.
The bill to rescind the funding, which passed along party lines, has little chance of becoming law, given the Democratic majority in the Senate and a pledge from President Joe Biden to veto the bill if it ever reaches his desk.
But the vote highlights how funding for the IRS has become a political football. The issue is sure to come up when Daniel Werfel, Biden’s nominee for IRS commissioner, gets a confirmation hearing.
Here’s why the Republicans’ oft-repeated claim about new IRS agents is exaggerated:
The figure refers to all employees, not solely auditors
The 87,000 figure comes from a 2021 Treasury report that estimated the IRS could hire 86,852 full-time employees over the course of a decade with a nearly $80 billion investment – not solely enforcement agents.
And all those new employees can’t be hired overnight. The money will flow to the IRS over a 10-year period.
“The reality is the $80 billion boost would be spread throughout the agency, with money flowing to enforcement, taxpayer services, operations, and modernization,” wrote Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center.
The Inflation Reduction Act dictates that about $45.6 billion will go toward strengthening enforcement activities – including collecting taxes owed, providing legal support, conducting criminal investigations and providing digital asset monitoring. But the IRS has not specified how many auditors will be hired.
More than $25 billion is allocated to support IRS operations, including expenses like rent payments, printing, postage and telecommunications.
Nearly $4.8 billion can be used for modernizing the agency’s customer service technology, like developing a callback service.
Roughly $3 billion is allocated for taxpayer assistance, filing and account services.
Many new hires will be replacements
Many of the new hires will be replacing staff that the IRS has already lost or is expected to lose through attrition in coming years.
Last year, then-IRS Commissioner Charles Rettig told lawmakers that staffing has shrunk to 1970s levels and that the IRS would need to hire 52,000 people over the next six years just to maintain current staffing levels to replace those who retire or otherwise leave.
4,000 customer service reps were hired last year
The IRS is already using the new funds to ramp up hiring for work outside of its audit operations.
In October, the IRS announced it had hired 4,000 customer service representatives to answer phones and provide other taxpayer assistance. At the time, the agency said it intended to hire another 1,000 staffers by the end of 2022.
Many of the new staff will be in place at the start of the 2023 tax season, and nearly all are expected to be trained by Presidents’ Day in February, which is traditionally when the agency sees the highest call volumes.
New funding could actually improve taxpayer service
National Taxpayer Advocate Erin Collins expects IRS services for taxpayers to improve this year – in part due to the funding increase.
Taxpayer service, like answering the phones and processing returns in a timely manner, has suffered as the IRS’ budget has shrunk by more than 15% over the last decade. Collins, who heads the independent watchdog organization within the IRS, last year called the IRS service “horrendous.”
Only about one in eight calls from taxpayers got through to an IRS employee last year, according to her annual report released Wednesday.
The IRS struggled significantly during the Covid-19 pandemic, allowing backlogs of millions of tax returns to pile up in the past two years.
“The majority of new hires the IRS makes will be those who answer the phones, work on processing individual tax returns or go after high-end taxpayers or corporations who are avoiding their taxes,” wrote Rettig in an op-ed published by Yahoo!Finance in August.
A Trump appointee, Rettig called the claim that the IRS is hiring 87,000 agents to harass taxpayers “absolutely false.”
While audit rates are expected to go up for some taxpayers as the new funding flows to the IRS, the rates have also been declining for some time.
Audit rates of individual income tax returns decreased for all income levels between tax years 2010 to 2019, according to the Government Accountability Office. They decreased the most for taxpayers with incomes of $200,000 and above, which are generally more complex.
The law is meant to target taxpayers making more than $400,000 a year
The Inflation Reduction Act says that the new investment in the IRS is not “intended to increase taxes on any taxpayer or small business with a taxable income below $400,000.”
Still, there is some uncertainty about how exactly the IRS will decide how to ramp up audits.
In an effort to shed some clarity, Treasury Secretary Janet Yellen affirmed the Biden administration’s commitment to not target low- and middle-income taxpayers.
“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 in a six to Rettig in August.
Yellen also directed the IRS to produce an operational plan within six months to detail how the new funding will be spent.