President Biden’s new budget blueprint relies heavily on tax hikes and increased tax enforcement. The proposal includes over $4 trillion in significant tax hikes and builds on the Inflation Reduction Act’s (IRA) $80 billion supplemental budget boost to the Internal Revenue Service (IRS) through 2031. The IRS would see its base budget increased by $1.8 billion (15 percent) in 2024, and the budget also proposes to continue the IRA’s boost to IRS funding into 2032 (an extra $14.3 billion) and 2033 (an extra $14.8 billion). Presumably, the President would carry this funding hike forward even further in the future.
So far, the administration has touted how the IRA funding for the IRS is being used to boost taxpayer services, but this misses some key context. Just four percent ($3.2 billion) of the $80 billion IRA funding will be used for taxpayer services; the lion’s share of 57 percent of the funds are reserved for enforcement.
This shift from taxpayer service to other priorities is shown in a spreadsheet projecting outlays across the federal government through 2028. The data shows that taxpayer services will comprise 24 percent of IRS administrative outlays (excluding costs from interest payments for refunds of overpayments and outlay impacts of refundable credits) in 2023 and will shrink to 14 percent over the next five years. On the other hand, tax enforcement expenses will grow as a share of IRS administrative expenses from 37 percent this year to 47 percent in 2028.
The administration is counting on the higher enforcement to bring in the new revenues it hopes to get from individual, corporate, and payroll taxes. It also hopes to decrease the "tax gap", which is an estimate of the difference from what the IRS actually collects from taxpayers and how much it thinks it should be collecting due to nonfiling, underreporting, or underpayment of taxes.
Before the IRA was enacted, the Department of the Treasury estimated the $80 billion boost would bring in an additional $316 billion in tax revenue. That estimate also included a short-lived proposal for a reporting regime to the IRS for all financial accounts with at least $600 in annual activity. As estimates from the executive branch about their own proposals tend to be overly optimistic, most rely on the lower $180 billion estimate from the Congressional Budget Office. CBO, and NTUF, also noted several points of uncertainty in the estimate that could mean even lower revenues, including factors like inflation limiting the number of new agents the IRS could hire and the ability of the IRS to adequately train the new hires.
With the additional $29 billion provided over FYs 2032 and 2033, the administration counts on raising an extra $134 billion in those years; the CBO will likely estimate a lower number when it analyzes the President’s proposal in the coming months.
Despite all this effort to strengthen the heavy hand of the IRS, Biden's budget would still add $17 trillion to the national debt over the next decade. A better path forward would be to simplify taxes to make it easier for taxpayers to understand and comply with the law, and focus on increasing the quality of services that taxpayers need to deal with an ever-more-complicated tax code.