By Glenn Kessler / The Washington Post
“Do you make $75,000 or less? 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.”
— House Minority Leader Kevin McCarthy, in a tweet, Aug. 9
With a vote scheduled Friday in the House on the big spending package approved in the Senate, the GOP has focused its fire on provisions that would bolster the Internal Revenue Service with new funding to crack down on tax cheats.
But these numbers are a misfire, lacking significant context.
We’re going to mostly focus on the audit claims, but let’s briefly address the alleged “army of 87,000 IRS agents,” as that number has spread rapidly across social media.
The 87,000 figure was plucked from a Treasury report released in May 2021 about how the administration hoped to address the “tax gap”: the difference between what is owed to the government and what is actually paid. That figure was believed to be at least $381 billion a year, with most of it because of underreporting of income, according to the nonpartisan Joint Tax Committee.
Years of congressional underfunding of the IRS has left the agency without the resources to quickly process returns, let alone assess the complex tax-avoidance strategies of well-heeled individuals. So audit rates have fallen dramatically and more taxpayers are presumed to be not paying what they owe.
For each dollar of additional spending on enforcement, the IRS estimates that it collects an average of $5 of revenue.
On page 17 of the Treasury report, a chart shows that almost $80 billion in new resources over 10 years would allow for the hiring of 86,852 full-time employees in the next decade. The report says the new staff, added in annual increments of about 7,000 to 12,000 people, would conduct audits, improve informational technology and enhance customer service.
About $46 billion of the funds is targeted for enforcement, but Treasury officials say a precise number of enforcement agents who would be hired is not known yet. Currently, the IRS has about 82,000 employees — down from 90,000 in 2012 — but when all is said and done, the size of the agency should only grow 25 to 30 percent.
Natasha Sarin, Treasury counselor for tax policy and implementation, told The Fact Checker that over half of the IRS staff — 50,000 — is eligible for retirement in the next five years. Much of the funding for new employees will be focused on mitigating that attrition and adding customer service and information technology specialists in addition to enforcement agents. The agency has also lost about 40 percent of the agency staff who specialize in complex tax audits, bringing it to the level of the agency in World War II, she said.
In any case, the 87,000 figure is wildly exaggerated. These people are not all new tax agents.
Now let’s turn to the audits. First of all, we should note that 80 percent of IRS audits of individuals in 2019 are simply through correspondence; in effect, a written request for some additional information.
McCarthy’s calculation that 710,000 additional audits would be conducted of people making less than $75,000 came via the Republican staff of the House Ways and Means Committee. The staff relied on a Sept. 2 blog post by Congressional Budget Office Director Phillip Swagel that explained how $80 billion of new spending for the IRS was estimated to raise an additional $200 billion in revenue over 10 years.
Swagel noted that CBO baseline budget projections had assumed a continuing decline in audit rates. “The proposal, by contrast, would return audit rates to the levels of about 10 years ago; the rate would rise for all taxpayers, but higher-income taxpayers would face the largest increase,” he wrote, adding that “the administration’s policies would focus additional IRS resources on enforcement activity aimed at high-wealth taxpayers, large corporations, and partnerships.”
So the GOP staff applied 2010 audit rates to the recent tax filing data, coming up with 1.2 billion new audits per year.
The math adds up, but these numbers lack important context.
Using IRS tax data, we did our own calculations. The raw figure of 710,000 sounds big, but people making less than $75,000 file more than half of tax returns: 125 million. So the increase in audits for this income group amounts to just 0.6 percent. Meanwhile, while the number of new audits for people reporting more than $5 million income seems small — about 9,500 — that would represent an increase of nearly 15 percent.
In a statement to The Fact Checker, the CBO indicated that Swagel’s blog post was not intended for such calculations.
“The statement about the effect on taxpayers in the September 2021 blog post was intended to place the magnitude of the funding change into context rather than as guidance as to how one might predict a count of audits,” the CBO said, adding that it has not “provided an estimate of the number of audits that might result from providing additional resources to the IRS since such an estimate would be very sensitive to exactly how IRS utilized the additional funding.”
In a May report, the Government Accountability Office (GAO) said audit rates have declined dramatically for the uber-rich. In 2010, more than 21 percent of tax returns reporting more than $10 billion in income were audited; and that dropped to 3.9 percent by 2019, GAO said. The report also said audit rates for people filing the earned income tax credit — which is for the working poor — were higher than average. That’s largely because audits related to the credit require few resources and are relatively easy to complete. More than half of the agency’s audits in 2021 were directed at taxpayers with incomes less than $75,000, the IRS says.
IRS Commissioner Charles Rettig, who was appointed by Donald Trump, said in an Aug. 4 letter to lawmakers that after the bill was approved, “audit scrutiny” would not be raised on small businesses or middle-income Americans. “Our investment of these enforcement resources is designed around the Department of the Treasury’s directive that audit rates will not rise relative to recent years for households making under $400,000,” he wrote.
Rettig was referring to this line in Treasury’s 2022 “Greenbook,” which outlines tax policies: “The proposal would direct that additional resources go toward enforcement against those with the highest incomes, rather than Americans with actual income of less than $400,000.”
Of course, nothing is written in stone; and the language about “actual income” suggests people reporting less than $400,000 could face some scrutiny. After all, some taxpayers report income that would place them in lower tax brackets but are significantly underreporting what they earn.
In a letter to Rettig sent on Aug. 10, Treasury Secretary Janet Yellen wrote, “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.” The letter said that “audit rates will not rise relative to recent years for households making under $400,000 annually” and that “enforcement resources will focus on high-end noncompliance.”
“We are committed to not increasing audit rates on ordinary people,” Treasury counselor Sarin said. “We will heavily concentrate on the top distribution of taxpayers.”
A McCarthy spokesman did not respond to a request for comment.
The Biden administration is planning to hire 87,000 IRS employees over the next 10 years — not IRS audit agents — and many will be replacing people who will retire soon. That’s a big difference.
As for hyperbolic claims about audits, McCarthy’s tweet lacks important context. The numbers reflect a relatively small percentage increase for people making less than $75,000; and a big one for the superwealthy. In any case, the calculations relied on a CBO analysis that the agency says was not intended to be used in this way, making the numbers even more dubious.
McCarthy earns Three Pinocchios.
Glenn Kessler has reported on domestic and foreign policy for more than three decades. Send him statements to fact check by sending a message on Twitter @GlennKesslerWP.