Inflation Reduction Act Could Enable IRS to Collect $561 Billion in Revenue, According to Treasury
Article Summary –
The US Treasury Department has indicated that the IRS could generate up to $561 billion in overdue and unpaid taxes over the next decade using the nearly $80 billion it will receive from the Inflation Reduction Act. The projection could rise to as much as $851 billion if the Act’s funding is renewed after its expiration at the end of fiscal year 2031. However, if $20 billion is cut from the IRS’s funding, it would reportedly cause a reduction of over $100 billion in revenues.
New Analysis Predicts IRS Could Collect $561 Billion in Overdue Taxes
The latest Treasury Department report suggests that the nearly $80 billion in funding the IRS receives from the Inflation Reduction Act could yield $561 billion in overdue taxes over the next decade, surpassing prior estimates.
The analysis indicates that renewal of the Inflation Reduction Act funding after its expiration in fiscal year 2031 could generate revenues of up to $851 billion. Nonetheless, the Treasury cautions that cutting $20 billion from the IRS’s funding would reduce revenues by over $100 billion.
The Treasury further elaborates that the IRS could continue to enhance enforcement against wealthy taxpayers and big corporations in the coming years, even with funding cuts. However, these cuts may hamper taxpayer service improvements and jeopardize near-term enforcement efforts.
The Role of IRS Investments in Revenue Collection
The report explains that previous IRS revenue estimates from the Inflation Reduction Act were limited to direct enforcement activities enabled by increased enforcement staffing. These estimates didn’t take into account other revenue-influencing activities such as improving voluntary compliance, modernizing technology, and using data analytics to boost productivity.
The Treasury highlights that the effects of these investments on revenue collection need to be more comprehensively analyzed. They suggest a holistic approach would yield revenues of $851 billion from IRS investments in technology, data analytics, and taxpayer services.
In the most comprehensive approach, the Inflation Reduction Act investment could raise $851 billion over FY 2024-2034, which is more than double the figures from previous estimates. As enacted, the Act would collect $561 billion over the same period.
According to an article, in addition to its FY 2023 annual appropriation of $12.3 billion, the IRS received approximately $79.4 billion in supplemental funding over a 10-year period when the Inflation Reduction Act was signed into law in August 2022.
Impact of Funding Cuts on IRS
The Treasury cites that due to a decade of significant funding cuts from Congress, the IRS required the Inflation Reduction Act investments to improve service levels, upgrade technology and boost enforcement against wealthy taxpayers and big corporations. These funding cuts reduced the audit rate on millionaires by over 70% from 2010 to 2019 and dropped the audit rate on large corporations by over 50% during the same period.
The IRS reported last month that it has recuperated about $482 billion in overdue taxes from wealthy tax evaders since last October, thanks to improvements made under the Inflation Reduction Act.
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