The magical April 15 tax filing deadline just passed for hundreds of millions of Americans, just as significant changes in staffing and funding at the Internal Revenue Service began to take effect. That’s good news for Americans conforming to tax laws and bad news for those trying to cut corners on their payments to Washington.
For more than a decade, Republicans have been squeezing the budget of the Internal Revenue Service, with the unstated goal of trying to prevent the IRS from collecting the full amount of potential tax revenues. This effort gained particular force after the IRS was accused in 2013 of targeting conservative pools of “dark money” attempting to influence the outcome of elections. But now staffing at the IRS has begun to turn up, initially because of money included in the 2020 Covid relief bill and, more recently, as part of the Inflation Reduction Act. By 2024, armed with $80 billion of additional funding under the IRA, the agency is projecting its headcount will climb back to almost 100,000.
The past cutbacks in IRS support have taken their toll. Audit rates across all incomes have been dropping significantly. In 2019, a filer with more than $10 million of adjusted gross income had just a 3.9% chance of being audited, down from 21.2% in 2010.
But the positive impact of the new funding has already had shown results. Since the passage of the IRA, the agency has hired more than 5,000 new customer service agents. Consequently, response rates to taxpayer increases have improved dramatically. During the last tax season, just 15% of customer calls were answered with live support; this year, the figure shot up to nearly 90%. Similarly, in 2022, a caller typically spent 27 minutes on hold; that figure fell in 2023 to just four minutes.
While it’s too soon to evaluate the impact of the new money on federal revenues, the potential is large. According to Treasury estimates, Americans paid an average of $2.8 trillion of taxes annually between 2014 and 2016 but there still remained a “tax gap” of $428 billion. That is roughly six times the amount that the IRS recovered through audits.
Of the $80 billion allocated to the IRS in the IRA, the Treasury department plans to use roughly $46 billion for tax enforcement, with $28 billion going to customer service and operations support, and just under $5 billion for updating the IRS’s antiquated computer systems.
In sum, the Congressional Budget Office estimates that the additional funding will result in an extra $177 billion of tax collections between now and 2031, reducing the budget deficit over that period by roughly $100 billion.