By Laura Clawson for Daily Kos
Daily Kos Staf
17 June 2023
POSTED TO:
There was a lot of Republican anger over the recent debt ceiling deal—and it was delicious—but that shouldn’t obscure the ways they managed to extract concessions that will harm the country. One of their big wins, which Republicans would claim saves $20 billion in spending, could actually cost the U.S. $240 billion in revenue for an overall $220 billion loss, a new study finds. That money will instead stay in the bank accounts of the very wealthiest people.
How? The $20 billion in cuts are to the Internal Revenue Service, following nearly a year of Republicans screaming about the additional IRS funding in the Inflation Reduction Act. And if the IRS cuts back on audits, or doesn’t expand them as planned, then tax cheats get away with it and the federal government has less money for important services.
A new study conducted by researchers at Harvard University, the University of Sydney, and the Treasury Department digs into 710,000 in-person audits from 2010 to 2014, finding that the return on investment for audits of the wealthiest households—not just the top 1% but the top 0.1%—is far greater than previously understood. That’s why their estimate of how much the Republican debt limit demands will cost is so much higher than the Congressional Budget Office estimated in losses for the IRS funding change.
It costs nearly three times as much to audit someone in the top 0.1% than someone at the very bottom. That’s one of the reasons the IRS had cut back audits of the people at the top over the past decade. But it’s shortsighted, because the IRS gets back much more money when it audits the wealthiest people. So much more money: For every dollar the IRS spends on auditing people in the bottom half of earners, it gets back 96 cents. For every dollar it spends on auditing people in the top 1%, it gets back $3.18. For the top 0.1%, it’s $6.29.
That the IRS spends more money on and gets back more money from audits of the very wealthy is omething we knew. It was a major reason for the Inflation Reduction Act’s $80 billion in additional IRS funding—that money was one of the ways the IRA paid for itself. But the new study, reported by The Washington Post’s Catherine Rampell, adds something important. People change what they’re reporting on their taxes after being audited. Whether they were intentionally dodging taxes and the audit makes them rethink that, or they were acting in good faith but getting something wrong, they pay more taxes in the years following an audit.
“These additional taxes equal about three times the revenue raised from the initial audit, on average, over the 14 years of data the researchers had access to,” Rampell writes. “So in other words, the biggest returns from doing more audits come from deterrence effects.” The end result is that auditing the wealthiest 10% of households will get the government $12 for every $1 spent on the audits. But the CBO didn’t understand this ongoing effect when it came up with its estimate of how much lost revenue $20 billion in IRS cuts would mean, so it underplayed the effects.
Republicans won’t be bothered, of course. They pretend to care about the deficit but it’s well established that they don’t. Deficit peacocking is always a cover for something else. And letting the wealthiest people get away with tax evasion? If Republicans can’t just slash taxes for multimillionaires and billionaires, they’re happy to let tax dodging do the same job.
But Democrats need to keep up the pressure on the IRS to audit rich people. President Joe Biden and Treasury Secretary Janet Yellen have vowed to raise audit rates on households earning more than $400,000 a year, and only on those households. That’s a great start. Now it needs to happen. Even with $20 billion less to work with, the IRS can still boost audits of the very wealthy above the pathetic level they’ve been at in recent years, and it will pay off. There is no excuse to do otherwise. Tax the rich, yes. But audit them, too. Make them pay what they owe under the law.
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