The Internal Revenue Service (IRS) has launched a significant campaign to intensify audits of high-income Americans and large businesses, aiming to recover lost tax revenue with the help of billions of dollars in new funding from Congress. While the focus on pursuing tax cheats among the affluent may seem like a distant concern for the average taxpayer, the implications of this initiative have sparked discussions about fairness, government priorities, and the potential impact on everyday Americans.
The IRS emphasizes that the intensified audits will primarily target high-income individuals and large businesses, with the assurance that audit rates will stay the same for taxpayers earning less than $400,000 annually. This threshold aligns with President Biden’s commitment not to raise taxes on those making less, encompassing roughly the top 2% of earners.
Tax experts suggest that middle-income Americans are unlikely to face heightened audit risks, emphasizing that the IRS is concentrating its efforts on the wealthier segments of the population. The reduction in the IRS budget over the years, along with a decrease in the agency’s workforce, has led to historically low audit rates for middle-income taxpayers. In 2022, the IRS audited approximately two of every 1,000 tax returns for middle-income Americans.
The IRS’s focus on high-income taxpayers stems from President Biden’s addition of nearly $80 billion in IRS funding to the Inflation Reduction Act 2022.
The goal is to leverage this investment to recover up to $400 billion in unpaid taxes from the wealthy over the next decade. Critics argue that this emphasis on enforcement negatively impacts small businesses and increases compliance costs for law-abiding taxpayers.
While opponents, particularly Republican leaders, express concerns about potential collateral damage and wasted resources, proponents argue that the IRS’s pursuit of wealthy tax cheats is essential for a fair tax system. The so-called “tax gap,” representing the difference between taxes owed and taxes paid, reached $688 billion in 2021, highlighting the need for enhanced enforcement efforts.
Research suggests that audits of high-income taxpayers can yield significant returns, potentially generating $12 in tax revenue for every $1 spent. Audits recover funds and contribute to increased compliance in subsequent years.
Holding wealthy tax evaders accountable resonates with most Americans, as indicated by a 2022 Gallup poll, where 52% of respondents expressed support for heavy taxes on the rich to redistribute wealth.
In the ongoing debate over IRS funding and priorities, the overarching goal is to create a fair tax system that ensures everyone pays their fair share. As the IRS turns its attention to wealthy tax cheats, the hope is that this initiative will contribute to closing the tax gap and fostering more significant equity within the tax system. While the focus is on the affluent, the broader implications underscore the importance of a transparent and just tax framework that benefits all taxpayers.