President Joe Biden signed the inappropriately named “Inflation Reduction Act” last Friday. Aside from the fact that even non-partisan analyses show the bill will have a negligible impact on actual inflation, one specific provision is raising red flags. In the plan, the Internal Revenue Service gets a fresh $80 billion in funding, with $45.6 billion of that slated for “enforcement” measures. This will involve the hiring of more than 87,000 new IRS agents. If past is prologue, it’s reasonable to expect this spells bad news for lower-income Americans.
The Congressional Budget Office estimates this new investment in the IRS will generate an additional $203.7 billion over the next 10 years. A sum that large certainly casts doubt on the notion that this will only impact the super-wealthy. It is especially concerning given the agency’s rates of audits across socio-economic classes in recent years.
According to IRS audit data, the most frequently audited county in the United States is Humphreys County, Mississippi. This rural county near the Mississippi Delta is known for catfish farming and has an average income of $18,000 per resident, making it among the poorest in the nation. Yet, Humphreys’ residents get audited far more often than those in cities such as New York, Chicago, or Los Angeles.
IRS Commissioner Charles Rettig sent a letter to the Senate last week, assuring lawmakers that this added funding will not be used to target the less financially well off. In the letter, Rettig says, “These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans … Audit rates will not rise relative to recent years for households making under $400,000.” This echoes the administration’s prior tax promises made to the American people.
However, this is a distinct tone shift for Rettig. In 2019, he testified before Congress and was asked about the disproportionate targeting of poorer Americans for audit scrutiny. He answered bluntly, “[This is] the most efficient use of available IRS examination resources.” He would later justify this by explaining that poorer Americans from disadvantaged communities are easier to audit because they themselves do not have the resources to fight back. Thus, they require less time and money on the part of the IRS.
This trend is not isolated to Humphreys County, of course. In fact, looking at a heat map of the U.S. counties with the most people living in poverty and a map of the counties that have the most audits per capita, you’ll find they’re almost identical. In 2015, when the IRS began scaling back its audits, rates dropped by 75% for earners making more than $1 million. On the other hand, that number only dropped 33% for moderate-to-low income filers. It is in the culture of the IRS to target the most vulnerable in our nation.
The numbers indicate this trend will continue. The aforementioned $203.7 billion in extra revenue will no doubt be at least partly pulled from lower-earning Americans. In fact, data from the Joint Committee on Taxation shows that the average federal tax burden will increase for every American making more than $30,000 per year as a result of the legislation.
Also, America has no more than 1,000 billionaires within its borders. The highest estimates place the number around 927 U.S. billionaires. There is no doubt that the 87,000 new IRS agents will not be focused solely on the affairs of these select few. For perspective, these agents would not be able to fit in any single NFL stadium – though they’d likely be able to extort the money to pay for all the tickets. This is an army of auditors that will come for Americans of all income levels.
The IRS has demonstrated numerous times that when the going gets tough, it goes for the path of least resistance. For its agents, that path is taking advantage of Americans who can least afford it. With this clear pattern of behavior over years, the IRS needs reform and to be dramatically scaled back. Instead, the Inflation Reduction Act rewards it with more money and more manpower. It will be these same vulnerable Americans who pay the price.
Dan Savickas is the director of tech policy at the Taxpayers Protection Alliance.