IRS Projects Surge in Tax Collection Amidst Allocation of Additional Funds

The IRS announced plans to significantly boost tax revenue by pursuing outstanding taxes, exceeding previous estimates, thanks to allocations from the Inflation Reduction Act (IRA).

A recent analysis, jointly released by the Treasury Department and the IRS, projects a potential increase in tax revenues of up to $561 billion between 2024 and 2034. This surge is attributed to heightened enforcement efforts made possible by the IRA, enacted into law by Democrats in August 2022.

These forecasts emerge amidst calls from some Republican legislators to curtail IRS funding, citing concerns over potential audits targeting middle-income earners. 

However, IRS and Treasury officials affirm that the agency’s focus remains on identifying affluent tax evaders and businesses with outstanding tax liabilities.

National Economic Adviser Lael Brainard hailed the analysis, asserting that President Biden’s investment in strengthening the IRS will significantly reduce the deficit by ensuring that wealthy individuals and corporations fulfill their tax obligations.

Previously, the Congressional Budget Office estimated a revenue increase of $180.4 billion between 2022 and 2031 due to the IRA’s injection of additional IRS funding. 

The current IRS projection suggests that with continued and diversified IRA funding, revenues could soar to as much as $851 billion from 2024 to 2034.

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IRS Funding Cuts Threaten Tax Compliance

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The IRS announced plans to significantly boost tax revenue by pursuing outstanding taxes, exceeding previous estimates, thanks to allocations from the Inflation Reduction Act (IRA).

Administration officials are leveraging this report to bolster President Biden’s economic agenda, particularly amid his reelection campaign, while also highlighting ongoing threats to IRS funding.

Brainard said that Congressional Republicans were supporting major firms’ and the wealthy’s tax avoidance by putting cutbacks to IRS funding ahead of budget reduction.

The IRA allocated $80 billion to the IRS, yet House Republicans included a $1.4 billion reduction in IRS funding in a debt ceiling and budget cuts package last summer. An additional $20 billion was diverted from the IRS over the next two years to fund non-defense programs.

Despite these challenges, the IRS has implemented various measures to optimize its resources. Recent enhancements in customer service were introduced as the tax season commenced, and the agency reported recouping half a billion dollars in back taxes from affluent tax evaders.

One of the IRS’s primary hurdles is ensuring compliance with tax obligations. The audit rate for millionaires decreased by over 70% from 2010 to 2019, and the audit rate for large corporations declined by over 50%. 

IRA funding is crucial in reversing this trend, noted Treasury’s Deputy Assistant Secretary for Tax Analysis Greg Leiserson.

The tax gap, representing the disparity between taxes owed and taxes paid, has ballooned to over $600 billion annually, according to IRS estimates.

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