- The IRS expects to collect billions in additional tax revenue by pursuing unpaid taxes through the Inflation Reduction Act, potentially increasing revenues by up to $561 billion from 2024 to 2034.
- Concerns from GOP lawmakers about increased IRS funding are countered by IRS and Treasury officials, who clarify that their focus is on targeting wealthy tax evaders and businesses with unpaid taxes.
- The analysis supports President Biden’s economic agenda and highlights the importance of investing in rebuilding the IRS to ensure that the wealthy and big corporations pay the taxes they owe.
Additional Coverage:
The IRS is expected to collect hundreds of billions of dollars in additional tax revenue by pursuing overdue and unpaid taxes, thanks to the funding provided by the Inflation Reduction Act (IRA). A new analysis released by the Treasury Department and the IRS estimates that tax revenues could increase by up to $561 billion from 2024 to 2034, as a result of enhanced enforcement made possible by the IRA, which became law in August 2022.
Some Republican lawmakers have expressed concerns about increased IRS funding, fearing that it may lead to more audits of middle-class Americans. However, IRS and Treasury officials have clarified that their focus is on targeting wealthy tax evaders and businesses that have unpaid or overdue tax bills.
The analysis is being used by administration officials to promote President Biden’s economic agenda, especially as the IRS faces constant threats to its funding. National Economic Adviser Lael Brainard highlighted that President Biden’s investment in rebuilding the IRS will reduce the deficit by hundreds of billions of dollars, as it ensures that the wealthy and big corporations pay the taxes they owe.
In 2022, the Congressional Budget Office estimated that the new IRS funding provided by the IRA would increase revenues by $180.4 billion from 2022 to 2031. However, the IRS now believes that if the IRA funding is restored, renewed, and diversified, estimated revenues could reach as much as $851 billion from 2024 to 2034.
The IRA provided the IRS with an infusion of $80 billion in funds, but House Republicans reduced the IRS budget by $1.4 billion through the debt ceiling and budget cuts package passed by Congress last summer. An additional agreement diverted $20 billion from the IRS to other non-defense programs over the next two years. Despite these cuts, the IRS has made efforts to demonstrate how it is spending the remaining funds, including customer service improvements and recouping half a billion dollars in back taxes from wealthy tax evaders.
The tax collection agency faces challenges in ensuring tax compliance. The audit rate for millionaires and large corporations has significantly declined in recent years. However, IRS officials believe that the IRA funding is enabling them to reverse this trend and address the tax gap, which currently exceeds $600 billion annually.