IRS using bad numbers to get more money

Money Flag
Money Flag

President Biden recently submitted his discretionary-spending request for fiscal year 2022 to Congress. Unsurprisingly, the president is seeking more money for the Internal Revenue Service: Under the plan, the agency’s budget would grow by $1.2 billion (a 10.4 percent increase from the 2021 appropriation). Almost 65 percent of the new money is directed squarely at enforcement. According to a statement from Treasury secretary Janet Yellen, the budget “will increase resources for tax enforcement by $0.9 billion.”

Specifically, the IRS wants to hire more auditors and tax collectors — including highly specialized auditors — to focus on high-income earners, corporations, and offshore transactions. The primary goal is to close the alleged “tax gap” attributable to the top 1 percent of income earners, which is claimed to be substantially higher than previously believed.

The argument driving this thinking originates from a paper in the National Bureau of Economic Research (NBER), in which the authors state that “36% of federal income taxes unpaid are owed by the top 1% [of income earners]” and that “collecting all unpaid federal income tax from this group would increase federal revenues by about $175 billion annually.”

The more government promises increased benefits to a broader segment of the population, the more desperate it becomes to collect money. And as the demand for revenue grows, it becomes increasingly necessary to break thumbs to get it. This attitude is abundantly clear in the messages sent to the public regarding the president’s proposed appropriation.

What is not abundantly clear, however, is that the push to provide the IRS with more enforcement resources is driven by at least three false narratives. Let’s evaluate each in turn.

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