First Republican Bill Eases Tax Fraud for the High-Paid

The big hammer strikes.

The big hammer strikes.

Republicans are setting the tone for their next two years in the House of Representatives by passing legislation that will add $114 billion to the deficit over the next decade, according to the Congressional Budget Office.

The pending bill, passed by Republicans in the House of Representatives on Monday, would cancel new IRS funding that the government authorized last year as part of the Inflation Reduction Act. That funding—about $80 billion—would go towards hiring new employees, upgrading technology, and generally strengthening law enforcement. The purpose of the funding was to cut about 13% of the taxes that are owed annually but never paid to the government, which is about $428 billion last year, or about a third of the federal budget deficit.

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The IRS is now understaffed, overstretched and barely fulfilling its enforcement responsibilities. As a result, the tax department has focused more on the easier-to-verify tax returns of low-earners than on the more complex returns of high-earners. For example, in 2022, people who were eligible for the earned income tax credit—from individuals earning $16,480 a year to a married couple with three children earning $59,187—were six times more likely to be audited than anyone else. In 2012, the IRS reviewed about 50,000 tax returns that reported income of more than $1 million. However, only 7,710 such declarations were verified in 2022.

And since people with high incomes have more opportunities to abuse the tax code due to deductions for home financing and capital income treatment, more incentives for fraud, and more resources such as lawyers and accountants, it is not surprising that they are the main source of the tax deficit. In 2019, the top 1% didn’t pay $163 billion, while the top 20% — those households earning more than $142,501 — didn’t pay nearly $500 billion in taxes.

By investing more in the IRS, legislators expected they would see more action to enforce the law and close the tax gap. That’s why the Congressional Budget Office believes cutting an additional $80 billion in IRS funding will add billions more to the deficit.

Conservatives have called the idea of ​​enforcing the law an overstatement. Many, including new speaker Kevin McCarthy, promoted the false idea that the bill would lead to the hiring of 87,000 new IRS agents tasked with checking records. This is a misrepresentation of the Treasury Department’s forecast for overall hiring for the agency over the next decade. This number includes auditors, as well as customer service representatives, technologists, and filling positions.

Fortunately for fiscal accountability, this bill to cut IRS funding is unlikely to become law as long as Democrats control the Senate and President Joe Biden is in the White House. But it is an important context for the upcoming budget battles that will determine next year in Washington, DC. Many Republican lawmakers have made it clear they are preparing to abuse the debt limit and risk a potential US default to cut spending on everything from science. in Social Security. But when they scream about mounting debt, don’t forget that simply enforcing existing tax laws would be a step too far.

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