Hyperbolic GOP claims about IRS agents and audits

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“Do you earn $75,000 or less? Democrats’ new army of 87,000 IRS agents will be coming for you — with 710,000 new audits for Americans earning less than $75,000.

– House Minority Leader Kevin McCarthy in a tweetAugust 9

With a vote slated for Friday in the House on the big spending package approved in the Senate, the GOP has focused its fire on provisions that would bolster the Internal Revenue Service with new funds to crack down on tax cheats.

But those numbers are a dud, lacking meaningful context.

We’re going to focus primarily on the audit claims, but briefly touch on the so-called “IRS army of 87,000 agents,” as that number quickly spread across social media.

The 87,000 figure was taken from a May 2021 Treasury report on how the administration hoped to close the “tax gap” – the difference between what is owed to the government and what is actually paid. That figure was estimated to be at least $381 billion a year, most of it due to underreporting of income, according to the nonpartisan Joint Committee on Taxation.

Years of Congressional underfunding of the IRS have left the agency without the resources to quickly process returns, let alone assess the complex tax avoidance strategies of high-net-worth individuals. As a result, audit rates have dropped dramatically and it is assumed that more taxpayers are not paying what they owe.

For every dollar of additional law enforcement expenses, the IRS estimates that it collects an average of $5 in revenue.

On page 17 of the Treasury report, a graph shows that nearly $80 billion in new resources over 10 years would hire 86,852 full-time employees over the next decade. The report says the new staff, added in annual increments of about 7,000 to 12,000 people, would perform audits, improve information technology and improve customer service.

About $46 billion of the funds are earmarked for enforcement, but Treasury officials say a specific number of enforcement officers who would be hired is not yet known. Currently, the IRS has about 82,000 employees — up from 90,000 in 2012 — but ultimately the size of the agency is only expected to increase by 25-30%.

Natasha Sarin, Treasury adviser for tax policy and enforcement, told The Fact Checker that more than half of IRS staff – 50,000 – are eligible to retire within the next five years. Much of the funding for new hires will be focused on mitigating this attrition and adding customer service and information technology specialists in addition to fulfillment agents. The agency also lost about 40% of agency staff who specialize in complex tax audits, bringing it to the agency level during World War II, she said.

In any case, the figure of 87,000 is greatly exaggerated. These people are not all new tax officials.

Now let’s get to the checks. First, we should note that 80% of IRS audits of individuals in 2019 are simply done by correspondence – in effect, a written request for additional information.

McCarthy’s calculation that 710,000 more audits would be done on people earning less than $75,000 came from Republican staff at the House Ways and Means Committee. The staff relied on a September 2 blog post by Congressional Budget Office Director Phillip L. Swagel, which explained how $80 billion in new spending for the IRS was estimated to be $200 billion in new spending. additional income over 10 years.

Swagel noted that the CBO’s baseline budget projections had assumed a continued decline in audit rates.The proposal, on the other hand, would bring audit rates back to levels of around 10 years ago; the rate would increase for all taxpayers, but higher-income taxpayers would face the largest increase,” he wrote, adding that “administration policies would focus additional IRS resources on enforcement activities aimed at high net worth taxpayers, large corporations and partnerships. ”

So GOP staff applied 2010 audit rates to recent tax return data, coming up with 1.2 billion new audits a year.

The math adds up, but those numbers lack important context.

Using IRS tax data, we did our own calculations. The raw figure of 710,000 sounds huge, but people earning less than $75,000 file more than half of the tax returns – 125 million. Thus, the increase in audits for this income group amounts to only 0.6%. Meanwhile, while the number of new audits for people declaring an income over $5 million appears low — around 9,500 — that would represent an increase of almost 15%.

In a statement to The Fact Checker, the CBO said Swagel’s blog post was not intended for such calculations.

“The statement on the effect on ratepayers in the September 2021 blog post was intended to put the magnitude of the funding change into context rather than provide guidance on how one might predict an audit count,” the CBO said, adding that it has not “provided an estimate of the number of audits that could result from providing additional resources to the IRS, because such an estimate would be very sensitive to exactly how the IRS has used the additional funding”.

In a May report, the Government Accountability Office (GAO) said audit rates had dropped significantly for the wealthiest. In 2010, more than 21% of tax returns reporting more than $10 billion in income were audited — and that figure fell to 3.9% in 2019, the GAO said. The report also said audit rates for people filing for the Earned Income Tax Credit – which is aimed at the working poor – were above average. This is largely because credit related audits require few resources and are relatively easy to perform. More than half of the agency’s audits in 2021 targeted taxpayers with incomes below $75,000, according to the IRS.

IRS Commissioner Charles Rettig, who was appointed by Donald Trump, said in an Aug. 4 letter to lawmakers that after the bill is approved, “the audit review” would not be exercised on small business or middle-income Americans. “Our investment in these enforcement resources is designed around the Treasury Department’s directive that audit rates will not increase from past years for households earning less than $400,000,” he said. he writes.

Rettig was referring to this line in the 2022 Treasury “Green Paper,” which outlines the tax policies: “The proposal would direct that additional resources be allocated for enforcement against those with the highest incomes, rather than against Americans whose real income is less than $400,000.”

Of course, nothing is set in stone – and the language of “real income” suggests that people reporting less than $400,000 could face intense scrutiny. After all, some taxpayers report income that would put them in lower tax brackets, but significantly underreport what they earn.

In a letter to Rettig sent Aug. 10, Treasury Secretary Janet L. Yellen wrote, “I direct that any additional resources — including any new staff or auditors hired — not be used to increase the small business share. or households. below the $400,000 threshold which are audited against historical levels. The letter stated that “audit rates will not increase from past years for households earning less than $400,000 per year” and that “enforcement resources will focus on high-end non-compliance” .

“We are committed to not raising audit rates on ordinary people,” Treasury adviser Sarin said. “We will be focusing heavily on the upper distribution of taxpayers.”

A spokesperson for McCarthy did not respond to a request for comment.

The Biden administration plans to hire 87,000 IRS employees over the next 10 years — not IRS audit officers — and many will replace people who soon retire. It’s a big difference.

As for the hyperbolic claims about audits, McCarthy’s tweet lacks significant context. The numbers reflect a relatively small percentage increase for people earning less than $75,000 – and a large increase for the super-rich. In any case, the calculations were based on a CBO analysis that the agency said was not intended to be used in this way, making the numbers even more dubious.

McCarthy wins Three Pinocchios.

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