Article Summary –
The Inflation Reduction Act, enacted by Democrats in Congress in 2022, invested $80 billion in the Internal Revenue Service (IRS) with the expectation of recovering $180 billion in additional revenue over a decade from wealthy taxpayers. However, a recent analysis by the U.S. Department of the Treasury and the IRS suggests the revenue figure could be as high as $561 billion. This revised estimate takes into account a broader range of activities that will influence revenue, enhanced services to improve voluntary compliance, modernizing technology, and the implementation of analytic advances that can improve productivity.
Impact of the 2022 Inflation Reduction Act on Revenue Collection
The Inflation Reduction Act enacted by Democrats in Congress in 2022, is estimated to bring in $180 billion in additional revenue from wealthy taxpayers through its $80 billion investment in hiring and development in the Internal Revenue Service (Congressional Budget Office). A new analysis by the U.S. Department of the Treasury and Internal Revenue Service suggests this figure could be as high as $561 billion.
The report explains that earlier analyses only considered the direct impacts of additional enforcement. It highlights the importance of enhancing services, adopting analytic advances, and modernizing technology to increase revenue.
The Inflation Reduction Act also improved health insurance subsidies, capped Medicare beneficiaries’ out-of-pocket costs for drugs, and increased federal investment in energy and climate change infrastructure. It was financed partially by ensuring corporations and individuals earning over $400,000 annually pay their fair share in federal taxes.
Despite Republican opposition and false claims that the funding would be used to unnecessarily grow the IRS, a 2023 CNN fact check clarified that these funds would mostly be used to hire necessary staff over a decade.
Treasury Secretary Janet Yellen ensured that none of these funds would be used to increase audits of small businesses or families earning less than $400,000. She also expected that technological enhancements would lead to reduced audit rates for honest taxpayers.
Even though Republicans attempted to repeal the IRS funding after winning a narrow House majority in the 2022 election, their bill is yet to be voted on in the Democratic-led Senate.
The IRS has reportedly collected approximately half a billion dollars in prior owed revenue from 1,600 millionaires since the Inflation Reduction Act was implemented.
Parties approved IRS funding cuts of $20 billion as part of 2024 debt ceiling and budget compromises, which could reduce total revenue recovered. However, if this funding is restored, revenue might increase by up to $561 billion in 2024-2034.
The Inflation Reduction Act’s IRS funding is set for 10 years. If Congress votes to extend this funding, the report estimates that total additional revenue could reach up to $851 billion by 2034.
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