WASHINGTON, Aug 20 – As a political messaging war rages over $80 billion in new funding for the Internal Revenue Service, a U.S. Treasury official is decrying an informal estimate that the money could cause Americans making less than $400,000 to they paid as much In ten years, $20 billion more in taxes.
Republicans seized on an estimate by the Congressional Budget Office (CBO) and argued that Democratic President Joe Biden’s recently passed sweeping tax, drug, and climate bill would violate his pledge not to raise taxes on middle-class Americans.
Republicans also say the funding will free up an 87,000-strong “army” of new IRS agents on American households, despite the Treasury Department’s plans to focus most of the IRS hiring on offsetting the wave of retirements and improving customer service and information technology.
When the bill, formally known as the Inflation Reduction Act, was debated in the Senate, Republican Senator Mike Crapo introduced an amendment prohibiting any use of the funds to audit Americans with taxable incomes of less than $400,000.
In response to Crapo’s request, CBO found that the proposed amendment would reduce revenue by $20 billion over 10 years if enacted, his office said a CBO spokesperson confirmed this.
The amendment was rejected on a party-line vote.
Asked about the middle-class tax claim, Natasha Sarin, the Treasury Department’s adviser on tax policy and administration, told this week that the CBO estimate assumed a threshold of $400,000 in reported taxable income before any audit, which would exclude the middle class.
Sarin said those earning $400,000 or more include much wealthier people who have hidden their income in lower taxable incomes below $400,000, sometimes even zero — exactly the people the Treasury Department is trying to target for audits.
Much of the $20 billion CBO estimates would be recovered from wealthier people who underreport their income, she said.
“People are trying to make it look like they’re under $400,000 when they’re well over it,” said Sarin, who, as a law professor at the University of Pennsylvania, conducted influential research on police tax evasion with former Treasury Secretary Larry Summers.
CBO has not released a final cost estimate for the inflation-reduction law including funds and massive new spending on clean energy and health care.
Sarin said the $80 billion to improve law enforcement, information technology, and taxpayer services would save more middle-class taxpayers who depend on wage income from being targeted by audits. New, modern computer systems would be able to better use data analytics and other tools to more precisely target the audits of wealthier Americans, she said.