Biden team pushes to allay concerns about tax enforcement funds

After a Republican outcry over a bill providing more funding to the Internal Revenue Service (IRS), Treasury Secretary Janet Yellen has directed the United States tax agency’s chief against using the new resources to increase audits for households making below $400,000 annually.

The Senate-approved Inflation Reduction Act (IRA) would provide nearly $80bn in additional funding to the IRS over 10 years, including about $45bn for enforcement. And so, Republican legislators have been warning that Democrats are looking to hire tens of thousands of IRS agents who would audit average Americans over small transactions and minor financial activities.

But on Wednesday, Yellen ordered IRS Commissioner Charles Rettig against using new hires to target low- and middle-income taxpayers.

“Specifically, I direct that any additional resources – including any new personnel or auditors that are hired – shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels,” Yellen wrote in a letter to Rettig.

CNN first reported on the letter on Thursday, and the White House confirmed it later.

On Sunday, Senate Democrats passed the IRA — an expansive $430bn bill that aims to lower drug prices and tackle the climate crisis — without the support of a single Republican.

Over the past few days, key Republicans have sounded the alarm about the additional funding that the IRS is set to receive. The new legislation is expected to pass in the Democratic-controlled House of Representatives by the end of the week.

“Do you make $75,000 or less? Democrats’ new army of 87,000 IRS agents will be coming for you—with 710,000 new audits for Americans who earn less than $75k,” House Minority Leader Kevin McCarthy wrote on Twitter on Tuesday.

The IRA does not specify a number of new employees to be hired by the IRS. But several US media outlets have traced the notion of 87,000 incoming IRS agents to a 2021 Treasury report that estimated that an $80bn investment in the agency would enable it to hire 86,852 full time employees by 2031.

Still, the number has become a rallying cry for many Republicans, who have used it to denounce the FBI search of former President Donald Trump’s home in Florida earlier his week.

“The FBI raiding Donald Trump is unprecedented. It is corrupt & an abuse of power,” Senator Ted Cruz wrote on Twitter on Monday. “What Nixon tried to do, Biden has now implemented: The Biden Admin has fully weaponized DOJ [Department of Justice] & FBI to target their political enemies. And with 87K new IRS agents, they’re coming for YOU too.”

For his part, Senator Marco Rubio, a Florida Republican, wrote on late Monday: “After todays raid on Mar A Lago what do you think the left plans to use those 87,000 new IRS agents for?”

Meanwhile, the Biden administration has pushed to allay some of the concerns about the IRS funding.

In a letter to the Senate earlier this month, Rettig, the IRS commissioner, said the new resources are “absolutely not about increasing audit scrutiny on small businesses or middle-income Americans”.

“As we’ve been planning, our investment of these enforcement resources is designed around the Department of the Treasury’s directive that audit rates will not rise relative to recent years for households making under $400,000,” Rettig wrote (PDF).

He added that new funding for technology and customer service would make it less likely that compliant taxpayers would be audited.

But critics have continued to raise concern about a possibly more enforcement-focused IRS, noting that the agency disproportionately targets working class taxpayers with audits.

On Thursday, the White House stressed that “Yellen’s directive again confirms that these resources will be used only to address the shortfall in addressing tax avoidance by the wealthiest Americans and the biggest corporations.”