The IRS is Adding 87,000 New Agents. Should You Worry?

The US House of Representatives passed the massive Inflation Reduction Act on Friday on a purely partisan vote.

The $430 billion bill includes new taxes totaling $739 billion. Here are some of the highlights of the Schumer-Manchin bill:

• $9 billion for climate agricultural programs to reduce bloating in cows;

• $27 billion for local and state governments to procure zero-emissions technology;

• $60 billion for “environmental justice programs”;

• A $7,500 tax credit for consumers purchasing Electric Vehicles, and

• Subsidies for wind, solar energy and energy-efficient housing materials.

Now, before you run off to the dealership for an Electric Vehicle (EV), consider this. The vast majority of EV’s won’t actually qualify for the tax credit. Only about 30% of EV’s on the market qualify for the tax credit due to onerous rules about battery components. Here’s a list from Consumer Reports of the vehicles that qualify.

I’m not an economist, but dontcha think if everything is getting crazy expensive in the US it’s a good time for the government to put the Amex card away?

The bill, which has already passed the Senate on purely partisan basis is headed to President Biden’s desk for signature.

While the bill is labeled as “inflation relief”, it’s mostly a climate, tax and healthcare spending bill. And, the bill includes nothing to spur American energy production or innovation. So, don’t expect any relief at the gas pump or grocery store.

To help pay for all these incentives, the plan levies new, minimum taxes on employers with least $1 billion in income on their financial statements. These employers will now pay 21% of taxable income or 15% of the income reported to shareholders, whichever is greater.

But, perhaps the most striking provision of the bill is a nearly $80 billion dollar expansion of the Internal Revenue Service. You know, the most hated of all government agencies? The IRS will spend $45.6 billion of that money to hire up to 87,000 new employees to beef up enforcement. That will double the size of the IRS -and double your probability of being audited.

About half of the IRS’s current staff, totaling 50,000 employees, are eligible to retire before 2030. And, the bureau has a backlog of 10.2 million individual tax returns. So, the bureau is in need of some fresh faces.

According to CNN, the agency’s budget has shrunk by more than 15% over the last decade. As a result, staffing levels and audit rates have been declining for years. They’re also using systems that were installed during the Reagan administration.

When the bureau is fully staffed it will have more employees than the State Department, the FBI, Border Patrol, and the Pentagon—combined.

I wrote the IRS back in December about a tax issue. I received a response eight months later that was generated by a computer. It didn’t even answer the original question.Their customer service makes the Post Office look efficient, which will hopefully improve with the new funding.

At the same time that this bill cleared the US Senate, the Twitterverse went wild. It seems that the IRS inartfully posted some job openings for Criminal Investigation Special Agents. Their timing couldn’t have been worse, as Twitter blew up with rumors of jackbooted thugs going door to door collecting taxes. The job description stated that “agents must legally be able to carry a firearm”. It further described \”major duties\” to include \”carry a firearm and be willing to use deadly force, if necessary\” and \”be willing and able to participate in arrests, execution of search warrants, and other dangerous assignments.\” The conspiracy nuts went crazy. To be clear, nobody is coming to your door with a gun to collect your taxes unless you’re Al Capone.

Now, as a guy who follows the rules and pays his taxes, I can’t object to holding everyone accountable. And, I think we’re both secretly hoping they stick it to the millionaires and billionaires out there who supposedly don’t pay their fair share. But, I’m not so sure that’s what Congress has in mind. Let me explain.

There are 300 million people in the US, but less than one-thousand billionaires. These are the folks that hire legions of accountants and lawyers to calculate their taxes. Not cause they’re patriotic but cause the tax code is that complicated. I’m certainly not a billionaire, but my personal tax return was 140 pages last year. I couldn’t begin to tell you what any of it means.

In 2021, there were 7.5 million millionaires in the US. So, the richest Americans combined only represent 2.5% of the population. That leaves the rest of us or 97.5% of the population-and we collectively make a lot more money than they do.

Here’s why I think the IRS is coming for the 97.5%. In late 2021, buried deep in the American Rescue Plan bill was an obscure reference to on-line payment apps, like Venmo and PayPal. The language forced payment apps to automatically provide all transaction data above $600 to the IRS.

The language was included to target small business owners, independent contractors and those with a side hustle that generates over $600 per year. (The previous law required $20,000 per year or 200 transactions.)

The payment apps will start sending data to the IRS at the end of 2022. Customers will receive a 1099-K tax form for income tax filing purposes.

So, why do I think the IRS is coming for the 97.5%? Because, in the words of bank-robber Slick Willie Horton, “that’s where the money is”. And, the Congressional Budget Office is projecting additional tax collections of $208 billion over ten years.

As evidence, people earning under $25,000 per year are already five times more likely to get audited by the IRS. According to the Transactional Records Access Clearinghouse (TRAC) at Syracuse University, about 13 of every 1,000 returns get audited for people under $25,000 annually. Only about 2.6 of every 1,000 returns get audited for all other taxpayers. Why? Because auditing a lower income return, especially those claiming the Earned Income Tax Credit, is easy. Auditing high income earners takes years and consumes an enormous amount of resources. Auditing a Personal Trainer who receives all of her pay on Venmo is simple. Just compare the PayPal data to the income reported on the return. It doesn’t take a ton of training, experience or skill. It either matches or it doesn’t.

But, the bigger question here is one of priorities. If I handed you $430 billion, how would you spend it? Here are some suggestions:

• 50,000 mental health professionals for our middle and high schools to deal with the growing epidemic of anxiety and depression in our kids.

• $25 billion to fund a voluntary gun buy back program in cities like Baltimore, Chicago and Washington, DC where gun violence is out of control.

• 25,000 school resource officers to protect our children from the nutbags who want to shoot up our schools.

• $25 billion to payoff college tuition loans for those who agree to serve three years as a police officer, teacher or healthcare worker in a major American city.At some point we have to wake up and realize that all this spending, regardless of how it’s packaged, comes with a cost. It won’t bring down inflation as the bill suggests. It’s simply America cranking up the printing presses and printing more money. Maybe I’m wrong, but all this idealistic spending will eventually lead to more inflation, not less. My writing is intended to be a conversation and I’d love to hear from you. Leave me a comment below.One quick favor, if you enjoy my writing would you forward this to a few friends or family members? I’d be grateful for any help in promoting my writing.