Despite Democrats’ pledges, an expanded IRS will harass the middle class
11/17/21
Democrats want to drastically expand the size and power of the IRS. If the left has its way, the tax-and-spend reconciliation bill will create an IRS that will excessively audit, harass and intrude into the lives of Americans.
Democrats want to double the size of the IRS with $80 billion in additional funding over the next decade and deploy 87,000 new agents and auditors. Forty-five billion of the new funding is devoted to enforcement, 23 times greater than funding devoted to taxpayer services (pre-filing assistance and education, filing and account services and taxpayer advocacy services).
Despite what Democrats claim, new IRS enforcement won’t be borne by the “rich” and large corporations. They already employ armies of accountants and lawyers to protect them from the agency. Instead, middle-class families and small businesses will be targeted – especially self-employed people, and cash-heavy businesses like restaurants, retailers and barbershops.
The left also wants to have the IRS create a “comprehensive financial account reporting regime” to track the withdrawals and deposits of bank accounts, investment accounts, and Venmo, Paypal, and CashApp accounts of American individuals and businesses. A senior Treasury official recently confirmed the Biden administration is still determined to get bank snooping “across the finish line.” Americans oppose IRS bank snooping on principle as an invasion of privacy.
This proposal would clearly harm Americans making less than $400,000 per year, despite assurances by the left.
It is not difficult to see how this violates the privacy of millions of Americans and there is nothing to stop this new reporting from impacting middle-class Americans, especially the millions of independent contractors that do not have wage income. Moreover, the exemptions Democrats have said they will add will likely make the final proposal more convoluted and complex and do not guarantee that taxpayers will not be targeted by the IRS.
Even the higher $10,000 threshold is little more than $200 in total inflows and outflows per week or $800 per month, amounts that many Americans could easily hit.
Democrats also want to have the IRS create and administer a new, government tax filing and preparation system.
This policy, which has long been a pet project of progressives like Sen. Bernie Sanders (I-Vt.) and Rep. Alexandria Ocasio-Cortez (D-N.Y.), would replace the existing system of voluntary compliance, where Americans are responsible for filling out their own tax returns, with a system where the government assesses and files taxes for Americans.
At best, it would require the IRS to collect more personal data to properly assess taxes. A recent report by the Progressive Policy Institute noted that the IRS currently does not have the information it needs to prepare tax returns for American families especially refundable tax credits claimed by millions of low-income taxpayers.
At worst, it would give the IRS more power to intrude in the lives of Americans and create a strong conflict of interest. Americans barely understand the tax code as it stands. Sixty-five percent think the tax code is too complex, compared to 7 percent that think it is too simple.
The IRS would have an incentive to overcharge a taxpayer and that individual would either have to take the government at their word or file themselves. If a taxpayer does decide to contest, there is no guarantee they will be aware of every deduction and credit they are owed unless they hire an expert to assist them. Of course, the IRS will have 80,000 new agents and the bank account information of taxpayers so taxpayers will be at a disadvantage even if they understand the law.
The IRS has proven unwilling or unable to protect taxpayer data. Earlier this year, the progressive group ProPublica announced it had received the stolen private tax returns of thousands of taxpayers covering 15 years. While the IRS and Treasury Department claim to not know how this tax information was obtained, if accurate it was obtained illegally and represents a stunning and alarming leak of taxpayer data.
This leak is not an isolated case – A 2016 Inspector General report found that the IRS had lost track of 1,000 laptops containing sensitive taxpayer data that were used by contract employees while in 2015, hackers stole the personal data of 330,000 taxpayers.
The IRS already has over 2,000 armed agents to enforce tax law. How many of the new 87,000 new agents will be armed?
Two decades ago, IRS agents came under scrutiny for tactics the New York Times described as “military-style raids” for taxpayers accused of non-violent crimes. A 1998 Washington Post article described how several small business owners were harassed by the IRS: “raiding parties of armed agents from the IRS Criminal Investigation Division barged into their homes or offices, frightened their employees and families – and ultimately came up empty-handed.”
If President Biden and congressional Democrats are successful, they will double the size of the IRS so that bureaucrats can snoop on the bank accounts of Americans and so the agency can create a new government tax filing system. These vast new powers will not be used to go after wealthy taxpayers but will fall on middle-class families and small businesses for years to come.
Alex Hendrie is director of Tax Policy at Americans for Tax Reform.