The IRS reported yesterday that, in the wake of serious threats that it is receiving, it is launching a safety review for all of its 600 facilities, the first such review since the Oklahoma City bombing in 1995.
As a former assistant secretary for management of the U.S. Treasury, with significant oversight responsibilities for the IRS, I was a strong advocate of more funding for the IRS. But I have previously warned that $80 billion of new funding for the IRS over 10 years is twice what it can reasonably and responsibly spend. The group of legislators who created the Bipartisan Infrastructure Framework in the summer of 2021 agreed and settled on $40 billion.
Given its history, as well as hiring difficulties being experienced across the public and private sectors today, the IRS is unlikely to be able to prudently hire the number of skilled employees or procure the other resources authorized by the bill. However, in the lead-up to last week’s enactment, there were claims made about the funding from both sides of the aisle that are patently false and misleading — and, often, dangerous. Those claims are now leading to credible threats against the IRS and its employees.
On the Democratic side, Senate Majority Leader Chuck Schumer (N.Y.) recently asserted that “[t]he Trump administration did a despicable thing. They didn’t audit anybody who made over one million dollars, and they said if you made $40,000 we’re going to audit you, because there is fraud in the earned income tax credit.”
Schumer should know better. In the final year of the Trump administration, 8.6 percent of the highest earners — those making more than $10 million — were audited, as were 5.1 percent of those earning $5 to $10 million and 2.5 percent of those earning $1 to $5 million. These were the highest percentages in more than a decade (including the Obama years). Moreover, these percentages are six to 20 times greater than the percentage of taxpayers earning $25,000 to $500,000 who were audited.
The senator should also know that the relatively high number of audits of low-income taxpayers (those making less than $40,000) are of individuals who receive the Earned Income Tax Credit. Why? Because the EITC and other refundable credit programs are among those with the highest instances of taxpayer miscalculation and fraud (the IRS inspector general estimates that 24 percent, $20 billion, of these payments are “improper”), and these improper payments are a significant source of the “tax gap” attributable to individual taxpayers. In addition, the IRS is mandated annually by Congress to publicize this problem and take action to remediate improper payments. Moreover, all of the “audits” of EITC recipients are “correspondence audits,” that is, letters sent to taxpayers requesting further information and/or indicating discrepancies between what they have reported and what the IRS is able to verify. Unlike audits of higher earning taxpayers, rarely (if ever) are these taxpayers ever meeting with the IRS.
Republicans have been no less loose with their facts. House Minority Leader Kevin McCarthy (Calif.) recently tweeted that the “Democrats’ new army of 87,000 IRS agents will be coming for you — with 710,000 new audits for Americans who earn less than $75k.” This assertion is patently misleading.
First, during the next several years, the IRS will hire 87,000 new employees, but, based on its aging workforce, it is forecasted to lose nearly 50,000; so, net-net, it will hire approximately 37,000 new employees.
Second, not all of them will be for enforcement. The $45 billion in the legislation earmarked for enforcement over the next nine years will double the IRS’s enforcement budget. The IRS’s 2022 budget of $5 billion funds approximately 35,000 enforcement agents and support personnel. In 2021, the IRS audited 659,000 taxpayer returns, representing about .4 percent of the 160 million returns filed. A doubling of the IRS enforcement budget would take that percentage up to .8 percent, which is still less than the percentage of returns audited by the IRS in 2010 (.9 percent), prior to its significant budget reductions. Democrats and Republicans can debate whether that was the end of the world, but they should use real facts.
Earlier this month, an IRS recruitment advertisement for its criminal investigations division stated that new employees would be required to carry a firearm. In response, the right-wing press and some Republican senators made misleading, if not dangerous, assertions.
Sen. Ron Johnson (Wis.) asked, “Who do you think they’ll weaponize the 87,000 IRS agents against?”
Sen. Ted Cruz (Texas) tweeted that “[T]he Biden administration has fully weaponized DOJ & FBI to target their political enemies. And with 87K new IRS agents, they’re coming for you too.”
As both senators must know, only about 2,000 of the IRS’s 75,000 employees carry a firearm — and for good reason. IRS criminal investigation agents investigate and engage with members of organized crime, gangs, terrorists, drug dealers, traffickers and other bad actors who also happen to launder money and cheat on their taxes. Like FBI agents and border guards, they put their lives on the line every day. They have participated in, and often led, some of the most significant criminal prosecutions in recent decades. It would be irresponsible — and cost the lives of these brave crime-fighters — to disarm them.
While explosive language and twisted facts are harmful in any policy debate, they are especially dangerous when it comes to the IRS. The agency collected nearly $4.2 trillion, 95 percent of all of the federal government’s revenue. The success of our nation in providing benefits and service to every American depends, in part, upon the success of the IRS and its dedicated workforce. Its credibility is essential to our economic and national security.
Democrats should be held accountable for the over-funding of the IRS that is included in the so-called Inflation Reduction Act. But American taxpayers would be better served if both parties had made their cases for this bill — and future IRS-related issues — responsibly, without reliance upon dangerous class warfare and “factual distortions.”
David F. Eisner is an operating partner of a private equity firm and was the assistant secretary for management at the Department of the U.S. Treasury from 2018-2021.