Democrats have embraced the IRS, a much-maligned federal government agency, as a key component of their most recent climate and healthcare spending bill.
As critics ask whether Senate Majority Leader Chuck Schumer (D-NY) and Sen. Joe Manchin (D-WV)’s Inflation Reduction Act will, in fact, lower prices, their IRS proposals are being scrutinized for their potential to break President Joe Biden‘s campaign promise not to raise taxes on the middle class.
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Republicans have underscored the as-yet unfinalized climate-healthcare bill’s $80 billion in IRS funding, $45.6 billion of which is for “enhanced enforcement,” as an in-kind middle-class tax hike. Many Republicans have cited a Joint Committee on Taxation analysis that those making less than $200,000 annually could contribute the majority of the money raised from underreported income, though not all experts agree.
American Action Network spokesman Calvin Moore, for example, described the bill’s IRS provisions as a middle-class “shakedown” that benefits “folks rich enough” to buy luxury electric vehicles.
“Biden’s new spending plan is little more than a handout for coastal liberal elites paid for on the backs of working families,” Moore said. “Higher taxes, more inflation, and working Americans locked up in years of IRS audits is all families have in store if Congress passes this dangerous plan.”
While it may be true some taxpayers’ liability could increase with enforcement, it depends who the IRS “goes after,” according to American Enterprise Institute senior tax policy fellow Kyle Pomerleau.
“That the Republicans are generally skeptical of the IRS may date back to the early Obama years, where there was an issue with the IRS and nonprofits, and then, there may be just skepticism of taxation overall,” he said, mentioning former President Barack Obama.
Regardless, House Republicans, who are poised to reclaim the chamber in November’s midterm elections, have recirculated polling from last year that found a majority of battleground district voters were less likely to cast a ballot for a Democrat who, among other characteristics, backed greater “IRS audits of taxpayers by hiring 87,000 new agents.”
“Hiring an army of IRS agents to terrorize the middle class is generally frowned upon by voters,” National Republican Congressional Committee spokesman Mike Berg said.
If that sounds familiar, it is because it is similar to the arguments Republicans made regarding previous versions of the bill Democrats hope to pass using a streamlined budget process known as reconciliation. Additionally, bank reporting requirements, which created privacy concerns, have been dropped from this iteration.
Simultaneously, the White House has adopted a different approach to the IRS provisions, particularly concerning estimates from the independent, nonpartisan Congressional Budget Office related to how much revenue it could raise without tax reform.
The White House spent Thursday amplifying a bipartisan group of former IRS commissioners who have endorsed the legislation, dismissing complaints that the provisions will affect everyone “but rich tax cheats” as “lies.” In their letter, Fred Goldberg, Charles Rossotti, and John Koskinen referred to the agency’s 1970s staffing levels, outdated technology infrastructure, and low audit rate.
“For ordinary Americans who already fulfill their tax obligations, audit scrutiny will decline because the IRS will be better at selecting returns for examination,” they wrote. “This bill is about getting to the heart of the problem and pursuing high-end taxpayers and corporations who today illegally evade their tax obligations.”
Last year, when the CBO projected the IRS provisions could raise roughly $120 billion over a decade, not the White House’s predicted $400 billion, spokesman Andrew Bates repeated that the agency “does not have experience” to provide accurate calculations.
More broadly, the Bipartisan Policy Center’s economic policy director, Shai Akabas, concurred that the IRS is underfunded after a series of budget cuts.
“There’s often no love lost for it because it’s the tax man, but we need to have an agency that is properly staffed and equipped to collect the revenue of the federal government,” he said. “It’s certainly a low-hanging fruit when it comes to bringing more revenue into the government.”
For Pomerleau, Democrats feel this is their chance to pass a bill they have been discussing since Biden’s inauguration, and “lining up behind” the CBO is in their best interest despite his personal distaste for their 15% corporate book minimum tax. The CBO found this week that the legislation could reduce the federal deficit by $305 billion through 2031.
“So there’s going to be less of nitpicking about certain scoring of provisions or about supporting the package as a whole,” Pomerleau said, noting Sen. Kyrsten Sinema’s (D-AZ) critical vote, which was secured Thursday with a change she had sought, giving the reconciliation bill a path forward in the evenly divided upper chamber.
“We have agreed to remove the carried interest tax provision, protect advanced manufacturing, and boost our clean energy economy in the Senate’s budget reconciliation legislation,” Sinema said in a statement. “Subject to the Parliamentarian’s review, I’ll move forward.”
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“At the end of the day, there’s still a path for this to reduce the deficit, but it may be a smaller impact than what we’re currently seeing,” Pomerleau added.
