IRS Anticipates Massive Revenue Surge from Enhanced Tax Collection Efforts

A recent analysis by the Treasury Department and the IRS suggests that the IRS is set to collect more overdue taxes than initially thought.

Thanks to enhanced enforcement measures funded by the Democrats’ Inflation Reduction Act (IRA), tax revenues are projected to increase by as much as $561 billion from 2024 to 2034.

The IRA, enacted in August 2022, allocated tens of billions of dollars in new funding to the IRS, with initial estimates suggesting a revenue boost of $180.4 billion from 2022 to 2031. However, the latest analysis suggests that with restored, renewed, and diversified IRA funding, tax revenues could potentially reach a staggering $851 billion from 2024 to 2034.

Administration officials are leveraging this report to bolster President Joe Biden’s economic agenda, highlighting the impact of investing in IRS infrastructure to reduce the deficit. National Economic Adviser Lael Brainard emphasized that rebuilding the IRS will ensure that the wealthy and big corporations pay their fair share of taxes.

IRS Operations Affected by Budget Cuts

However, the IRS’s funding has faced challenges, with House Republicans pushing for reductions in IRS funding. 

Despite receiving an $80 billion infusion from the IRA, subsequent budget cuts diverted additional funds away from the IRS, hindering its enforcement efforts.

Efforts to showcase the IRS’s effectiveness in using its remaining funds have been ongoing, with recent customer service improvements and successful recoupment of back taxes from wealthy tax cheats. Yet, Republican critics like Rep. Jason Smith argue that increased IRS funding will burden taxpayers, particularly those earning less than $75,000 annually, with additional audits.

Nonetheless, the need for bolstered enforcement measures is evident, given the growing tax gap, which exceeds $600 billion annually according to IRS estimates. 

The IRS’s ability to reverse the decline in audit rates on millionaires and large corporations underscores the importance of sustained funding to ensure tax compliance and reduce the deficit.