The state’s treasurer and tax experts are worried that a new Democrat-backed deal might be Uncle Sam’s way of weaseling into the wallets of more Pennsylvanians after lawmakers passed a massive reconciliation bill that would boost the Internal Revenue Service (IRS) budget by $80 billion over the next decade.
The Senate passed the bill along party lines with Vice President Kamala Harris breaking the tie, moving it a step closer to a House vote. All of the Democrats in Pennsylvania’s delegation, including Reps. Chrissy Houlahan, Mary Gay Scanlon, and Susan Wild are expected to vote for the $739 billion spending deal.
If signed into law by President Joe Biden, it would allocate more than half of the new IRS funding, $45.6 billion, toward beefing up enforcement by hiring about 87,000 new agents, roughly doubling the size of the tax agency.
Critics complained only a fraction of the new investment would go toward processing return backlogs and enhancing customer services at an agency that is notoriously difficult to reach.
“Giving the Internal Revenue Service a massive $80 billion increase should send shivers down the spines of small business owners and the American middle-class,” Republican State Treasurer Stacy Garrity told DVJournal. “Everyone should pay the taxes they owe, but this is a startling overreach by the federal government. Small businesses are the heart of our economy, and as we continue to recover from the pandemic and face the effects of super-charged inflation, hitting them with teams of IRS auditors is absolutely the wrong thing to do.”
The Congressional Budget Office estimates the investment is projected to haul in $203.7 billion in revenue from 2022 to 2031.
Tax attorneys echoed the state treasurer’s concerns, fearing everyday taxpayers would bear the brunt of increased enforcement efforts rather than large corporations and wealthy Americans.
They pointed out training new agents takes between six months and a year before they would be ready to receive low-level enforcement cases likely worth thousands — rather than millions — of dollars.
“This is horrible. This is the worst type of legislation, the worst spending bill yet,” tax lawyer Richard Booker said. “The Democrats have outdone themselves.”
IRS Commissioner Charles Rettig, looking to assuage GOP concerns, wrote to lawmakers that the cash infusion would “absolutely not [be] about increasing audit scrutiny on small businesses or middle-income Americans.”
But critics said it was hard to take Rettig at his word and accused Democrats of using the bill as a “revenue generator” to give Americans a false sense that they are interested in addressing the issue of inflation ahead of the midterm elections.
“I think he’s lying,” Booker said. “He knows they wouldn’t have asked for it unless they knew what they’re going to do with it.”
For example, the IRS was caught targeting conservatives during the lead-up to the 2012 presidential election. The Obama IRS official who admitted the agency’s misbehavior, Lois Lerner, was allowed to retire with a full pension and the agency later destroyed materials related to the scandal that were under subpoena.
Also last year, the leftwing news site Pro Publica reported details from what it described as a “trove” of private tax returns it had obtained of some of America’s wealthiest citizens—15 years worth. Leaking those private, personal documents is a felony, yet tens of thousands of pages were delivered to the liberal media.
The IRS said in its 2021 annual report it identified about $2.2 billion in tax fraud and initiated more than 1,300 investigations into allegations of tax-related crimes, recommending 850 of those cases for criminal prosecution.
Those numbers are a drop in the bucket, experts said, as IRS audits plunged by 44 percent between fiscal years 2015 and 2019, with the biggest declines among the wealthy, CNBC reported, citing a 2021 report from the Treasury Inspector General for Tax Administration. Audit rates for Americans making $5 million or more dropped to about 2 percent in 2019, down from 16 percent in 2010, the outlet reported.
In Pennsylvania, the number of state-led audits and tax-related prosecutions was even lower between fiscal years 2017 and 2022. The state Department of Revenue reported 10,651 field audits for that time frame and only 68 prosecutions for the same period.
State officials brought no tax crime cases against anyone in 2020 partly because of widespread government shutdowns caused by the COVID-19 pandemic and only seven cases last year, a department spokesman said,
Gregory M. McCauley, who runs his own tax firm in Chadds Ford, said the IRS historically has targeted tax protestors, along with individuals and companies that will make “newspaper splashes.”
He mentioned the case of the Ocean City Boardwalk pizza chain, Manco & Manco as an example, saying his office received calls from other frightened pizza-shop owners after the feds indicted Charles Bangle for tax evasion.
Bangle was sentenced to 15 months in prison in 2017 after prosecutors failed to report more than $263,000 in income and avoided paying more than $91,00 in taxes.
“They go after big numbers,” McCauley said. “After that case, we got calls from 10 or 15 pizza places who said, ‘We need to talk.’ It’s done for the deterrent effect. They’re looking for a poster child, someone who is going to cause people to say, ‘I need to change my ways.’”
Veteran GOP communications professional Patrick Hynes tweeted, “Replace ‘FBI’ with ‘IRS’ and replace ‘Trump’ with ‘Trump voters’ and you get the gist of the reconciliation bill and those 87,000 new enforcement agents.”
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