WASHINGTON (NewsNation Now) — As millions of Americans file ahead of the Tax Day filing May 17 midnight deadline, lawmakers are increasingly looking at boosting the Internal Revenue Services’ budget to help pay for infrastructure improvements.
However, the IRS has sounded the alarm on a different magnitude, saying not everyone is paying their fair share.
In selling its plan, the White House has emphasized what it describes as fixing a “two-tiered system of tax administration” in the U.S. While regular workers pay taxes on the wages they earn, some wealthy taxpayers find ways to maneuver around them.
Those with annual incomes under $25,000 are audited at a higher rate (0.69%) than those with incomes up to $500,000 (0.53%), according to IRS data. Taxpayers who receive the earned income tax credit (EITC), a program that applies mainly to low-income workers with children, are audited at a higher rate than all but the very wealthiest filers.
The Mississippi Delta is home to some of the poorest communities in the country; it’s also home to one of the most heavily audited counties in America.
Residents in Humphreys County, Mississippi, are more likely to be audited than any other place in the U.S., according to IRS data analyzed by ProPublica.
“I think we all just kind of walk around with an innate fear of the IRS,” said Ben Wilkerson of North Mississippi Rural Legal Services, who represents the latter group.
Most Americans never receive the dreaded audit letter from the IRS, but those who do are most likely remarkably wealthy or live in poverty.
“For whatever reason, they just don’t have the time, or the resources, or just the will to fight back against the IRS, Wilkerson said.
The EITC program gets extra scrutiny from the IRS, and while most who benefit don’t have the money to fight the government, Janet Holztblatt says, “on the other hand, wealthy and big corporations have access to very sophisticated tax lawyers and tax advisors.”
Holztblatt, who works with the Tax Policy Center, stated corporations are nearly four times as likely to fight back and win against the IRS than regular taxpayers.
“The IRS is kind of a boogeyman, right? But for, you know, the very rich and for corporations, the IRS is afraid of them,” said Paul Kiel, a business and consumer finance reporter for ProPublica.
The government is losing an estimated $1 trillion in unpaid taxes every year, according to the IRS commissioner. That’s enough to cover the entire budget deficit for 2019, the last pre-pandemic year.
One reason for the gap in unpaid taxes — dramatic budget cuts to the IRS.
The number of IRS agents is down 43% since 2010, according to a study by Syracuse University.
As a result, while the number of millionaires in the U.S. has doubled since 2012, the number of millionaires audited decreased by 72%.
It’s the same pattern for big businesses — in 2012, 93% of major corporations were audited compared to just 38% last year.
In a statement to NewsNation, IRS Commissioner Chuck Rettig said his agency needs help.
“The IRS requires more resources to conduct investigations into underreported income and to pursue high-income taxpayers who evade their tax liability through complex schemes,” said Rettig.
Now President Joe Biden is proposing that Congress build up the agency, saying that a more aggressive collection of unpaid taxes could help cover the cost of his multitrillion-dollar plan to boost infrastructure, families and education. More resources to boost audits of businesses, estates and the wealthy would raise $700 billion over 10 years, the White House estimates.
Biden’s new spending proposals include an extra $80 billion over 10 years to bolster IRS audits of upper-income individuals and corporations. It’s a proposal with bipartisan support on Capitol Hill.
“One percent of the tax-payers, 36 percent of the unpaid taxes. Most Americans pay what they owe, meaning that they cover for the tax cheats through higher taxes, fewer public services,” said Democratic Sen. Sheldon Whitehouse of Rhode Island.
“I’m certainly open to increasing the IRS budget to allow the agency to pursue those who are avoiding paying their taxes,” said Republican Sen. Susan Collins of Maine.
The IRS rejects the notion of unfair audit treatment, saying that critics have misinterpreted the data.
Rettig bristled at the suggestion during a Senate hearing. High-income taxpayers “are audited more than any other taxpayer,” he said. “At a rate over 8% for those earning more than $10 million.”