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Fact Check: Hell-bent on Supercharging IRS Against Middle Class, Democrats Once Again Mislead Public

January 9, 2023 — Fact Sheet    — Tax   

As Republicans drew closer to passing legislation to protect the middle class and small businesses from an IRS supercharged with 87,000 new agents that would audit them, Democrats resorted to repeating long debunked arguments. Here are a few:

Claim: Republicans are falsely claiming the IRS will hire 87,000 new agents.

Fact: Treasury’s own proposal published in 2021 shows that the IRS would add 86,852 full-time equivalent employees by 2031. When CBO analyzed the proposal, it acknowledged the IRS would more than double its head count.

Read: Brady on Manchin-Biden Bill: Attention Wal-Mart Shoppers–More IRS Audits Headed Your Way

Claim: The IRS isn’t hiring for 87,000 new positions, they’re just replacing retiring employees.

Fact: False—new funding is not needed to replace retiring employees because when an employee retires, the funding for that employee remains unspent until the position is filled again. If they weren’t hiring tens of thousands of people, they wouldn’t need $80 billion dollars. Even the Washington Post acknowledged this while partially retracting claims in a previous fact check.

Claim: New IRS funding will improve taxpayer service. 

Fact: Despite a clear need for greater taxpayer customer service amidst a historic tax return backlog, only $3.2 billion of Democrats’ $80 billion is earmarked for that purpose.

From the Wall Street Journal editorial board: “Despite all this new money, Americans shouldn’t expect better IRS service. The agency in the 2022 filing season answered a mere 10 percent of its phone calls…

“The Taxpayer Advocate Service revealed in June that as of May 31 the IRS was still sitting on 21.3 million unprocessed paper tax returns, with millions of taxpayers ‘waiting six months or more to receive their refunds.’ Yet the Schumer-Manchin bill devotes only $3.2 billion for ‘taxpayer services.’”

Read: Democrats Want 87,000 New IRS Agents to Audit Walmart Shoppers

Claim: New IRS funding will lead to closing the so-called “tax gap” – the amount of money owed to the federal government that the IRS fails to collect.

Facts: 

  • The IRS’s numbers are highly disputed. Former IRS Commissioner Rettig testified before Congress that the tax gap could be as high as $1 trillion—contradicting the official IRS estimate of $381 billion per year. President Biden’s Tax Compliance Agenda uses an estimate of $630 billion. Yet the most recent IRS tax gap estimate actually showed that the US voluntary compliance rate increased significantly.
  • Worse, these estimates are outdated. All of these estimates are based on years-old data, including before a tax reform that simplified the tax code and improved compliance.
  • IRS fell short with past funding increases: Despite the Biden Administration’s claim that more money will increase IRS audits and increase revenue from wealthy individuals and corporations, the Treasury Inspector General for Tax Administration actually found that despite using significant resources auditing large businesses, the IRS failed to bring in money to the Treasury from those audits nearly 50 percent of the time.

Read: The Numbers in Biden’s Invasive Tax Gap Plan Don’t Add Up

Read: Former Democrat Treasury Secretaries Want More Funding for IRS They Unleashed on Innocent Taxpayers

Claim: Republicans are fighting Democrats’ $80 billion windfall for the IRS because they know it will allow the agency to go after wealthy tax cheats.

Facts: 

  • False. Studies from the nonpartisan Joint Committee on Taxation found an increased likelihood of audits for the middle class under Democrats’ agenda.
  • Democrats voted against protecting taxpayers making less than $400,000 from increased audit scrutiny.
  • Even the CBO found that shielding lower- and middle-class taxpayers from audits in the bill would mean $20 billion fewer dollars in revenue collected by the agency.

Read: CBO: New IRS Audits Will Grab at Least $20B from Lower- & Middle-Income Families

Claim: Secretary Yellen and other top Biden officials promises are legally binding for the IRS, and won’t lead to increased audits on the middle class.

Facts:

  • Reason Magazine reported there are no legal protections for the middle class in Democrats’ law: “You’ll just have to take their word for it.”
  • Yellen didn’t even make this promise. Her carefully worded “promise” has a loophole large enough to drive 87,000 IRS agents through:

“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.”

  • In a September 2021 blogpost, CBO estimated that boosting IRS funding by $80 billion would increase tax revenues by $200 billion adding that “the proposal…would return audit rates to the levels of about 10 years ago; the rate would rise for all taxpayers.” That was when audit rates for the middle class were at historic highs.

Read: Democrats Fail to Protect Middle Class From IRS Audits

Claim: Republicans are adding to the deficit by defunding IRS audits on the middle class.

Fact: Congress’s nonpartisan scorekeeper admitted that it applies rules for spending inconsistently. In fact, using the agency’s own guidelines,it should not have assumed so much revenue would come in from new audits, which enabled Democrats to use the IRS as a budget gimmick. Thanks to CBO’s estimate of revenue from new audits of low-income families, Democrats could claim to pay for their Green New Deal handouts without significantly adding to the debt.

If Democrats are willing to cut their hundreds of billions of dollars in corporate giveaways, they won’t need this tax hike on small businesses and families.

Claim: Republicans gutted the IRS over the last ten years and would prefer to defund the entire agency.

Fact: Republicans held the agency accountable and has even worked to reform it in a bipartisan way. After the IRS targeted conservative and tea party groups for scrutiny, President Obama agreed to cut the IRS budget. In recent years the agency’s budget has risen significantly and the agency received well over $1 billion in supplemental funding during the pandemic. Republicans fought to pass the bipartisan Taxpayer First Act in 2019, which focused on improving the IRS and providing more resources. Democrats turned their backs on that bipartisan effort.

Read: New Schumer-Manchin Bill Will Supercharge Long History of IRS Abuses 

Claim: Republicans don’t care about fixing the problems at the IRS like customer service and outdated technology.

Fact: False. Republicans’ bill cuts the funding for IRS enforcement and operations support but keeps in place additional funding for taxpayer services and IT modernization. Republicans think the IRS needs internal reforms and significant management improvements, but ultimately Republicans are focused on making the IRS work for taxpayers, not against them.

Read: The Family and Small Business Taxpayer Protection Act