According to a watchdog group, taxes will increase by $16.7 billion on American taxpayers earning less than $200,000—a nearly $17 billion tax targeted solidly at low and middle-income earners next year.
The Joint Committee on Taxation (JCT), a nonpartisan watchdog group, also stated that at least half of all new tax revenue raised next year would come from those earning under $400,000, and by 2031, those earning below $400,000 are projected to bear as much as two-thirds of the burden of the additional tax revenue collected.
The group also estimated that between 78 and 90 percent of the estimated additional $200 billion the IRS will collect will come from small businesses making less than $200,000 annually. While it was previously believed that the IRS would target higher income individuals, according to the JCT, only 4-9 percent of additionally collected funds will come from businesses making north of $500,000 a year.
“The IRS will have to target small and medium businesses because they won’t fight back,” Joe Hinchman, executive vice president at National Taxpayers Union Foundation, said. Hinchman also noted this isn’t something new for the IRS, stating “The IRS says ‘We’re going after the rich’ but when you’re trying to raise that much money, the rich can only get you so far… The rich have their lawyers and fight it — that’s why the poor are easier to go after.”
Last year, the IRS audited Americans earning less than $25,000 a year at five times the rate of other groups, according to a study by Syracuse University’s Transactional Records Access Clearinghouse (TRAC), a nonpartisan, nonprofit data research center.
Analysis of the new spending for the IRS showed that Americans who earn less than $75,000 per year are slated to receive 60 percent of the additional tax audits. According to this analysis, the IRS would conduct more than 1.2 million additional annual audits of Americans’ tax returns.
In response to heavy criticism, the IRS Commissioner Charles Rettig said that “audit rates” will not increase relative to recent years. This comment does suggest, despite audit rates not increasing, that lower income Americans will still be subject to being audited at five times the rate of all other groups.
“There is language in this bill that provides some guidelines, but it’s not at all a guarantee. It indicates that the intent of the increased spending is not to target those earning less than $400,000. But intent is a somewhat squishy word,” said William McBride, the vice president of federal tax and economic policy at the nonpartisan Tax Foundation in an interview with FOX Business.
“The fact of the matter is most returns report income under $100,000. That’s where the money is, so to speak…” McBride continued. “They will need to increase the audit rates on middle-class and low-income folks to get the sort of revenues they’re claiming from this.”
The Inflation Reduction Act of 2022 signed into law by President Biden last month allows the IRS to recruit 87,000 new agents and states that a majority of the new funding will be dedicated to enforcement. Shortly afterward, a report from 2019 by ProPublica, an independent non-profit, showing the audit rate of every county in the U.S. was shared by many Republican supporters online. The report states that “Humphreys, with a median annual household income of just $26,000, is audited at a rate 51 percent higher than Loudoun County, Virginia, which boasts a median income of $130,000, the highest in the country.”
The report includes maps which show that poor and rural counties in the South and West have elevated audit rates whereas counties with incomes between $50,000 and $100,000 are audited the least. With studies showing that previous policies did not target the rich for audits, it is very unlikely that this trend will change under the new Act.
Both Democrats and Republicans are using the Inflation Reduction Act in an attempt to boost their support for the Midterm elections this November.
Senate Majority Leader Chuck Schumer said, “The Inflation Reduction Act … is already creating new investments, new jobs, new opportunities for American families… The Inflation Reduction Act that every Republican voted against is already delivering for our country.”
Senator Elizabeth Warren tweeted “During the Senate’s passage of the Inflation Reduction Act, every single Democrat stood up to giant pharmaceutical companies and all Republicans voted against lowering drug prices. There’s no question about who stands with working people and who stands with giant corporations.”
Republicans had much to say in criticism of the Act. Florida Representative Matt Gaetz said the government is arming up the IRS because “Joe Biden is raising taxes and disarming Americans.”
House GOP leader Kevin McCarthy stated, “Democrats’ new army of 87,000 IRS agents will be coming for you — with 710,000 new audits for Americans who earn less than $75k.”
Senator Johnson told Newsmax that giving the IRS more power by allotting it an extra $80 billion through the Inflation Reduction Act may be the one thing that turns a “red wave” election this November into a “red tsunami.” Johnson also added that under former President Barack Obama, the IRS was “weaponized” against his enemies and Biden is doing the same thing now by pushing through a bill that allocates so much extra money to the agency.