In a recent letter to IRS Commissioner Charles P. Rettig, Treasury Secretary Janet Yellen contradicted herself and the White House in an effort to disguise Democrats’ plans to increase audits on low- and middle-income Americans and small businesses.
Democrats’ massive tax-and-spend bill includes $80 billion in increased IRS funding to conduct 1.2 million more audits. This is supposed to raise an extra $200 billion to fund the green energy handouts and Obamacare subsidies found within the bill.
Under this plan, 87,000 new IRS agents would be hired, making the agency larger than the Pentagon, State Department, FBI, and Border Patrol combined.
While Democrats claim these agents will be used against large corporations and wealthy individuals, the primary target will be low- and middle-income and small businesses. Secretary Yellen’s letter accidentally admits this.
Yellen claims that “small business[es] or households earning $400,000 per year or less will not see an increase in the chances that they are audited.”
However, in the same letter, she clarifies that it is the share of audits that will not change:
“Specifically, I direct that any 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.”
Evidently, these claims cannot both be true. If the share of audits on small businesses, for example, remains constant and the IRS doubles the number of audits (as it plans to do), then twice the amount of small businesses will be audited. Certainly, this does increase the chances that companies and individuals making less than $400,000 per year will be audited.
Yellen’s letter, therefore, also contradicts the White House’s messaging on new audits.
When Press Secretary Karine Jean-Pierre was asked, “So, new audits on anybody making under $400,000 a year?” she answered, “No. Very clear, no.”
Further, how would the agency differentiate between its use of existing resources and new resources? Is Secretary Yellen suggesting that existing funding has unlimited audit potential? The money allocated to the Treasury is all in one account. Announcing that additional resources will not be used in this way means nothing unless the agency bars all of its funds from going towards increased audits on entities and individuals below the $400,000 threshold.
The White House cannot provide a straight answer to these concerns because the simple truth is that 87,000 new IRS agents will be sicced on small businesses and working families.
If we take Yellen’s word that the share of audits will not change, then low-income Americans and small businesses are in real danger. Currently, households with less than $25,000 in annual earnings are five times more likely to be audited by the IRS than everyone else.
This is in line with estimates from the nonpartisan Joint Committee on Taxation (JCT). The JCT found that 78 to 90 percent of the revenue from new audits will fall on tax filers earning less than $200,000 a year. Just 4 to 9 percent of new revenue will come from those earning more than $500,000 a year. The plurality of new audits will be on Americans making between $1 a year and $25,000 a year.
This is not surprising. Wealthy individuals and large corporations are almost always tax compliant. The wealthy and large corporations already have armies of lawyers and accountants that ensure they legally take advantage of the plethora of credits and deductions offered by the tax code. It doesn’t matter how much more the IRS receives in funding – they will not find violations in the law that do not exist. Instead, they must go after more vulnerable targets to actually raise money: middle-class Americans and small businesses.
Democrats’ plan to unleash 87,000 new IRS agents – instructed to “find more money” – on already-struggling Americans is incomprehensible. In addition to a recession and record-high inflation, Americans can expect to be further crushed under the boot of a rapidly growing, corrupt federal agency.