An Armed I.R.S. Is Coming for Us, Republicans Warn

In 2016, an analysis by the Internal Revenue Service (IRS) reported that the "tax gap" – the amount of taxes Americans owed but failed to pay – reached almost half a trillion dollars a year for the years 2008 through 2010, an average annual loss of $458 billion. By so reporting, the IRS was presumably angling for increased funds so it could go after tax cheats.

But Republicans in Congress, saw opportunity to go on the warpath, naming the closing week of April "IRS Week", and devising half a
dozen measures to penalize the tax agency for doing so poor a job of tax collecting. Utah Senator Orrin Hatch said the IRS must "get smarter about guaranteeing tax compliance". California's Kevin McCarthy, now House Minority Leader, called the agency "a picture of government corruption and incompetence". House Speaker at the time, Paul Ryan of Wisconsin, even faulted the agency for enforcing "a tax code that no one can understand", a tax code that his Congress itself had created, not the IRS.

But now that Democrats have passed the Inflation Reduction Act (IRA), which provides the IRS with $80 billion across 10 years, shouldn't we expect Republicans, after all that vitriol in 2016, to rejoice that the IRS can finally afford to go after "wealthy tax cheats"? Of course not. Those on the right howled in protest.

“Stop Biden’s shadow army of 87,000 IRS. agents,” intoned Senator Ted Cruz, the Texas Republican, falsely amplifying what had only been a Treasury Department proposal from 2021 contemplating what the IRS could do with additional funding. Whatever the undecided number, it will be offset by 50,000 due to retire over the next five years.

Republican candidate for Arizona governor Kari Lake, who believes that Trump won the 2020 election and keeps company with QAnon adherents, showed her preference for fantasy saying that it was no coincidence that “they hired 87,000 IRS agents the day before” the F.B.I. search of Mar-a-Lago — 87,000 already hired and in a single day, she thinks. And even before the IRA had been signed into law.

Chuck Grassley, the Iowa senator running for his eighth six-year term at age 88, told Fox News viewers that IRS agents might be coming with loaded “AK-15s” and “ready to shoot some small business person in Iowa.”

Kevin McCarthy warned of a "new army of 87,000 IRS agents” who “will be coming for you".

That the 87,000 will all be armed was the total lie advanced by Fox News some 40 times, nine times by Tucker Carlson, who hosts the network's most watched program. Only 2,100 agents — those who must deal with dangerous offenders engaged in illegal activity such as narcotics and money laundering — are authorized to carry weapons on the job.

Sen. Rick Scott (R-Fl), in charge of the GOPs midterm Senate election, wrote an open letter advising the "American Job Seeker" not to apply to the IRS because when Republicans take over again, the funding will be clawed back, returning the IRS to today's crippled state. He had earlier said, "We will immediately do everything in our power to defund this insane and unwarranted expansion of government into the lives of the American people".

Florida Governor Run DeSantis asked whether "the Regime" is getting more IRS agents to "wield against its adversaries? Banana Republic."

Others, on social media such as Donald Trump's Truth Social, labeled IRS agents “thugs” and “terrorists” and likened them repeatedly to the KGB and a “new Gestapo” that will “hunt down and kill middle-class taxpayers”, according to one Fox News hysteric.

In that 2016 outpouring of outrage, there was no mention that legislators in the House and Senate had cut the IRS budget every year from 2010 through 2015 by $1.2 billion, causing the agency to shrink by 17,000 employees. Republicans have a long history of animosity toward the IRS. Their expressed mission is to protect the middle class and small businesses from what they would say are the predatory practices of the agency. Unexpressed is that they do their utmost to hobble the IRS so as to protect their campaign donors, the wealthiest Americans and big business, from scrutiny and audit. That, and the counterpart of delivering tax cuts such as the 2017 legislation that greatly favored the topmost income brackets and slashed corporate taxes by a jaw-dropping 40%.

All other federal departments cost money; the IRS is the one division that makes money for the government. But Republicans have time and again taken steps to prevent that from happening. Budget cuts see to it that the IRS cannot afford to go after industrial titans and the wealthy, which requires sophisticated staff able to grapple with tax lawyers and accountants who have erected thickets of obscurity to make befuddled IRS agents surrender.

• Between 2010 and 2021 the IRS budget was cut 19%, resulting in a 21% reduction in staff — a 31% reduction of enforcement staff — cutting in half the number of criminal investigations it could afford to open.

• "The last time the IRS had so few auditors was 1953", Bryce Covert at Slate tells us.

• The workforce of about 75,000 is the same size as in 1970.

• Audits fell by 42% between 2010 and 2017, reaching a 40-year low in 2019 made all the worse when factored against the 50% population increase over the period.

Worse still have been new tasks regularly dropped on the IRS by Congress without a second thought to how the shrunken department can handle them:

• the changes of the 2017 tax cuts,

• the order by Congress to stand up overnight complicated transfer-payment programs such as the child allowance,

• having to distribute three rounds of stimulus payments to practically everyone in the country in 2020 and 2021.

It shouldn't be a surprise that only 10% of phone callers got through to the IRS in this year's tax season. These added burdens coupled with pandemic staffing shortages have led to huge backlogs of unprocessed paper tax returns. There were 35 million in May of last year, down to 24 million this March. Even with the 500,000 the IRS is processing every week, according to a Wall Street Journal tax column, that's 48 weeks of work with the current staff level.

The IRS has had to pull this off with hopelessly obsolete systems kept that way by the Republican budget cuts. It is still a paper-based system without even the use of scanners. The tax savvy circle relevant items on returns with red pens. Others keystroke the numbers into the system.

Of the IRA's $80 billion, $25.3 billion has been allotted to back office functions such as replacing computers still running COBOL, a programming language created in the 1950s with few left who know how to read the code. Entirely new systems need be created where we can file tax returns online with data already filled in from companies reporting our transactions to the IRS. A May 2021 report from the Treasury Inspector General for Tax Administration found that 42% of printers and copiers at three IRS tax-processing centers were unusable or broken. Mail-processing equipment is “20 years old and has not had any significant technical upgrades in more than 15 years,” the IG reports. The equipment often slices through returns that staff must then tape back together. Describing the disarray, one employee told The New York Times, "A surprisingly large amount of time has been used looking for carts to put files on and staples for stapling files together."

Treasury Secretary Janet Yellen has spelled out priorities to Commissioner Charles Rettig that the IRS is to “fully resolve the inventory backlog and make significant improvements in taxpayer services,” “overhaul an information technology system that is decades out of date,” and invest and train employees “so they can identify the most complex evasion schemes by those at the top.”

The tax gap runs to about 15% beyond taxes actually collected, is the estimate. The Congressional Budget Office estimates that more vigorous enforcement could bring in $200 billion over the next ten years. The IRS thinks much more lies out there for the taking; in 2018 their estimate was that $125 billion a year is left on the table.

That's been the cost of the IRS not being able for lack of staff and funding to go after wealthy individuals and large corporations in search of tax cheating. Time magazine reported that the audit rate for Americans making more than $1 million a year dropped from 8.4% in 2010 to 2.45% in 2019. Audits on Americans reporting $5 million or more in income fell to 2.35% in 2019 from 16% a decade earlier.

To keep the IRS focused on the upper income tiers, Ms Yellen also instructed that:

“[A]ny additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels."

We'll see how that goes, but as editorial and opinion writers have noted, almost all historical auditing for many years has been targeted at the under $400,000 earners, not those above, so they will hardly be getting a free ride. To give them their due, the GOP is worried that, should investigating the rich prove too difficult or yield too little of expected revenue, the IRS might fall back on the easier targets of low- or middle-income taxpayers which would make their alarmists correct.

The president and treasury secretary need to keep watch. If this does happen, if there's little success in reining in the rich who evade taxes, if the tax burden continues to fall on the middle and lower classes, if inequality continues in perpetuity, still more of an angry public will give up on democracy in abject disgust.