GOP campaigns against the IRS, vowing to slash its funding

IRS pleas for more funding from Congress — made over the years by one leader after another — finally paid off this summer when Democrats tucked an $80 billion boost for the agency into their flagship climate and health care law.

Fortified with a new funding stream, the IRS is making plans to clear a massive backlog of unprocessed tax returns, upgrade technology that is decades out of date and, yes, hire more auditors.

But, as GOP candidates across the country are making clear, the battle over IRS funding has only just begun. They are making attacks on a larger IRS a central part of their midterm election pitch to voters, warning that the Democratic legislation will bankroll an army of auditors that will harass middle-class taxpayers rather than help them.

“If you pass it, they will come — after you,” says an ad running in an Iowa House race that spoofs a scene in the “Field of Dreams” movie. Instead of baseball players emerging from a field of corn, it’s black-suited IRS agents.

The GOP’s warnings are generally alarmist and misleading. The agency is not hiring an army of 87,000 “new agents” to target low- and middle-class Americans. Many hires will be used to replace some 50,000 IRS employee retirements in coming years. Others will become customer service representatives answering taxpayer phone calls.

Some of the IRS hires will be added to the ranks of sophisticated auditing teams that spend thousands of hours poring over complicated returns, but the Biden administration has also made clear that small business or households earning $400,000 per year or less will not see an increase in their chances of being audited.

“The purpose of the funding is to modernize a severely underfunded agency to provide the American people with the customer service they deserve,” said Natasha Sarin, Treasury’s Counselor for Tax Policy and Implementation.

But campaign politics has a way of becoming policy. With GOP ads against the IRS blanketing campaign airwaves, funding for the agency appears far from safe and could come under threat as soon as the next Congress is sworn in.

House Minority Leader Kevin McCarthy, the speaker-in-waiting, has promised that if Republicans take the majority, passage of a bill to repeal the new IRS funding will be their first legislative act.

While such a bill stands little chance of becoming law — President Joe Biden will retain veto power even if the GOP wins control of Congress — Republicans are unlikely to abandon the issue. Their greatest leverage over IRS funding will come when Congress takes up must-pass spending bills to finance government agencies or to avoid a government default on its debt.

Douglas Holtz-Eakin, an economist and president of the American Action Forum, a center-right think tank, doubts that lawmakers will go so far as to force a government shutdown in a demand for less IRS funding.

“If it was important enough to shut the government over it, the government would be shut,” Holtz-Eakin said. He noted that lawmakers passed a short-term measure last month to finance the government into December and largely skipped the IRS fight.

Still, some proponents of the additional IRS funding are concerned by the Democratic response to the GOP ads, or to be more precise, the lack thereof. Instead, Democratic groups and candidates are largely focusing their campaign ads on non-economic issues such as abortion rights.

“There’s crickets, is exactly the word, a crickets response from Democrats on this issue,” said Frank Clemente, executive director of Americans for Tax Fairness, a liberal-leaning advocacy group.

“This is a story about messaging,” Clemente said. “… Candidates need to be talking about it. They need to be running ads on it. They need to be telling people how they’re going to benefit, not just personally benefit by an improved IRS, but how rich and corporate tax cheats are going to have to pay the taxes that they owe.”

The IRS is still working on the details about how it would spend the extra $80 billion, but it has emphasized that resources would be directed at improving customer service and scrutiny at the high end of the income scale.

Among other things, the IRS says its new funding will be devoted to remedying longstanding customer service issues — like answering the phone. The problem is so pervasive that a bipartisan group of lawmakers wrote to the IRS last November to complain about phone calls being answered only 9% of the time during the 2021 filing season.

The IRS will also be tasked with coming up with how to move forward with an expanded free-file system for taxpayers.

Nina Olson, a former head of the Office of the Taxpayer Advocate, said if funds are cut, taxpayers who have been hoping for better customer service will be most negatively impacted.

“If you don’t want the IRS to handle 85% of incoming calls, then cut the funding — if you want the IRS to continue to have technology that comes from the 1960s, by all means, cut its funding,” Olson said.

Democrats provided the funding boost to the IRS to help pay for other health and climate priorities, such as helping millions pay their health insurance premiums over the next three years and capping insulin costs at no more than $35 a month for Medicare beneficiaries.

Of the additional $80 billion in IRS funding, the legislation allocated $46 billion for enforcing tax laws. The remainder goes to other activities such as services for taxpayers, operations support and updating business systems.

Additional funding for the agency has been politically controversial since 2013, when the IRS under the Obama administration was found to have used inappropriate criteria to review tea party groups and other organizations applying for tax-exempt status.

In the ensuing years, the IRS was mostly on the losing end of congressional funding fights, even as a subsequent 2017 report found that both conservative and liberal groups were chosen for scrutiny.

In April, IRS Commissioner Charles Rettig told members of the Senate Finance Committee the agency’s budget has decreased by more than 15% over the past decade when accounting for inflation and that the number of full-time employees at 79,000 in the last fiscal year was close to 1974 levels.

Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, said if Republicans are successful in cutting funding for the IRS, “it will seriously damage a fundamental function of the government,” she said “which is really troubling.”

“The reality is that government, through the IRS, plays a critically important role in the lives of Americans every day,” she said. “Pretending that role doesn’t exist to score political points is destructive.”