After lots of hemming and hawing, Democrats finally got their huge boost in IRS funding in the so-called Inflation Reduction Act in August 2022. This $80 billion boost over ten years was supposed to help to “close the tax gap” by improving IRS enforcement to collect money taxpayers owed but were not paying. This would not increase the audit rate on taxpayers making below $400,000, the Treasury promised. The target was those evil rich guys sitting on piles of money.
Two years later, Secretary of the Treasury Janet Yellen has given an update on how that’s going. A massive triumph, in the Treasury’s telling:
- The IRS in February 2024 launched an initiative to pursue 125,000 high-income, high-wealth taxpayers who have not filed taxes since 2017. These are cases where IRS has received third party information — such as through Forms W-2 and 1099s — indicating these people received income between $400,000 and $1 million or more than $1 million, but failed to file a tax return. Prior to the Inflation Reduction Act, the IRS non-filer program ran sporadically since 2016 due to severe budget and staff limitations that did not allow these cases to be pursued. With new Inflation Reduction Act funding, the IRS now has the capacity to do this core tax administration work. In the first six months of this initiative, nearly 21,000 of these wealthy taxpayers have filed, leading to $172 million in taxes being paid.
- The IRS in the fall of 2023 launched a new initiative using Inflation Reduction Act funding to pursue high-income, high-wealth individuals who have failed to pay recognized tax debt, with dozens of senior employees assigned to these cases. This work is concentrated on taxpayers with more than $1 million in income and more than $250,000 in recognized tax debt. The IRS was previously unable to collect from these individuals due to a lack of resources. After successfully collecting $38 million from more than 175 high-income, high-wealth individuals last year, the IRS expanded this effort last fall to around 1,600 additional high-income, high-wealth individuals. Nearly 80% of these 1,600 millionaires with delinquent tax debt have now made a payment, leading to over $1.1 billion recovered. This is an additional $100 million just since July, when Treasury and IRS announced reaching the $1 billion milestone.
A little over $1 billion? After two years? Talk about moving the goalposts.
At various stages in the Democrats’ quest for a bigger IRS, they were throwing around numbers as high as a $1 trillion to be collected from better enforcement. That estimate came from “some congressional Democrats” in a July 2021 Washington Post story.
Hearsay from unnamed legislators is one thing, but the Treasury itself in May 2021 thought it could raise $700 billion over ten years from better tax enforcement. That was the same number the White House had said in a fact sheet the month before.
By October 2021, the White House had revised its estimate to $400 billion over ten years. Still a ton of money.
As I pointed out at the time, these estimates were always crazy. The Congressional Budget Office has been estimating revenue gains from better tax enforcement for years and has never found numbers anywhere near that high. The highest increase in revenue it had ever found was $200 billion over ten years.
Once the Inflation Reduction Act actually came into being, Democrats were banking on the IRS provisions raising $203.7 billion over ten years. It would take time to phase in, so only about $3 billion of that was to be expected by 2023.
Then, in February 2024, the Biden administration cranked up the crazy again. The Treasury released a new study that claimed if the current IRS funding levels were made permanent, a different method for estimating revenue was used, and the IRS implemented better enforcement strategies, the Inflation Reduction Act’s provisions could raise up to . . . wait for it . . . $851 billion over ten years. This figure was quoted by the White House Council of Economic Advisers. The low-end estimate from the report was $390 billion over ten years.
These estimates are not all for the same things. Some were proposals, and some were based on legislative text that got changed. But the actual results two years later are not in the same ballpark as any of the estimates.
There is not — and never was — any possible way that the IRS is going to raise several hundred billion dollars over ten years from better tax enforcement. This was magical thinking from Democrats. And they only wanted it to be true so that they could immediately spend the money raised on progressive policies. They got the spending; we get the debt.