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How Democrats and Republicans Differ on Ways IRS Should Boost Tax Collection

May 13, 2019

The Internal Revenue Service estimates that it fails to collect about $460 billion in owed taxes annually, and Democrats and Republicans have very different versions of how to close that gap, according to news reports.

The chance of getting audited by the IRS has fallen to below half a percent, Rep. Richard Neal, D-Mass., chairman of the House Ways and Means Committee, said last week at the committee’s hearing with the Treasury Department, according to FA magazine. And little wonder: the IRS’s budget has dropped by almost $3 billion in real dollars since 2010, to $11.5 billion, according to Democrats, the publication writes.

The IRS’s examination staff has dropped by 38% since 2012, representing close to 5,000 workers, while its revenue officer ranks shrank by 1,600, or 42%, according to FA magazine. Since 2010, the agency’s enforcement staff force has dropped 40%, the publication writes.

Democrats say that the tax gap appears to favor the wealthy as they have more opportunities for dodging taxes by “tax avoidance planning,” Neal said at the meeting, according to FA magazine.

“However, the IRS is not focusing on these [wealthy] taxpayers,” Neal said, according to the publication. “Instead, in 2017, the IRS targeted low-income, earned income tax credit taxpayers.”

Neal questioned J. Russell George, inspector general for tax administration at the Treasury, on why the IRS wouldn’t get a higher per-hour revenue of its agents’ time by going after high-income earners, FA magazine writes.

George said the IRS would be able to collect more revenue if it had more revenue officers, according to the publication. He also admitted the plans formulated more than a decade ago to form a “global high wealth team” that would go after those earning $10 million or more never came to fruition, nor did any other strategy to target high earners, FA magazine writes.

But Rep. Kevin Brady, R-Texas, the leading Republican on the committee, said getting those 1,600 revenue agents back would only increase collections by 1% annually, according to the publication. Instead of more staff, what the IRS needs is “better customer service; smarter audits; improved IRS assessment of the gap; and capitalizing on our simpler, improved tax code,” Brady said, FA magazine writes.

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As for going after high-earners, Brady had a different idea.

“Gig economy workers, such as folks who drive for Uber or use their home as an Airbnb, contribute greatly to our economy. But as [the inspector general for tax administration] recently discovered, there is greater risk of folks who participate in the gig economy of noncompliance,” he said, according to the publication.

By Alex Padalka
  • To read the FA Magazine article cited in this story, click here.