The optimistically named Inflation Reduction Act pumps up to $80 billion into the IRS. Funds are earmarked for increased enforcement, operational improvements, customer service, and systems modernization. That money is more than six times the IRS’ current annual budget of $12.6 billion. A whopping $45.6 billion is earmarked for implementation so that the IRS can get better and faster at collecting taxes. According to some reports, the IRS could hire as many as 87,000 new agents, and with more than $45 billion paid to enforcement, many people assume there will be more audits, and that Congress’ financial foot on the IRS gas pedal should Assuming more taxpayers dump the money, the richer mobilize the tax money to feed the federal government.
However, a new study by the Tax Foundation indicates that inflation she has previously Tax collection increased by up to 23% compared to last year. After all, inflation seems to be everywhere. The Tax Foundation’s report on the rise of IRS collections might make you scratch your head and wonder what could happen with more resources devoted to IRS collections. The Consumer Price Index (CPI) is up 8.3 percent from a year ago overall, and some numbers are much worse. Just take food for example (11.4% increase) and energy (23.8% increase). Federal tax collections are not part of the CPI, but federal tax collections also appear to be overstated, up 23 percent from a year ago according to the Congressional Budget Office (CBO). In fact, at the current pace, federal tax collections will reach a record high of about $5 trillion in nominal dollars for the fiscal year (FY) 2022 ending September 30, which is about $1 trillion more than last year’s $4 trillion in combinations ( also record).
Notably, individual income tax collections posted the biggest rise, rising 32 percent from $1.8 trillion last year to $2.4 trillion this year. Payroll taxes increased 14 percent from $1.2 trillion last year to $1.4 trillion this year, while corporate taxes rose 12 percent from $285 billion to $319 billion. Other revenue rose 17% from $281 billion to $328 billion. In fact, federal tax collections are approaching an all-time high of 20.5 percent of GDP in 1943 during World War II. Compared to the post-war average federal tax collection of 17.2 percent of GDP, this year’s collections are set to exceed that level by 3 percentage points.
Unfortunately, the suggestion that tax collections may put us in a better financial position than we thought is unlikely to allay concerns about taxpayers being audited, or taxpayers fear that more IRS funding means more audits. Tax collections do not consist solely of money collected in IRS audits and deficiencies assessments, and not only from IRS-imposed collection activities such as taxes. In fact, the bulk of the money comes the old-fashioned way, by taxpayers including their income on their tax returns and sending it to the IRS. We have a largely voluntary tax system that relies on the voluntary compliance of taxpayers. Today, however, there is still a palpable fear on Main Street that the new IRS funding will mean more audits, or stricter audits for at least some taxpayers. Some happy news about bigger tax collections may not change that.