The IRS could collect $561 billion in tax revenue over 10 years if it maintains its funding from the Inflation Reduction Act of 2022, P.L. 117-169, the Service said in a study released Tuesday.
If it can maintain the funding through 2034 rather than the current 2031, as the Biden administration has proposed, that figure increases to as much as $851 billion in revenue, the Service said.
Previously, the IRS estimated that the Inflation Reduction Act funding would result in $390 billion in revenue if it were extended to 2034, according to the IRS study. Improvements to the methods for estimating enforcement revenues bring the estimate to $497 billion. The study gets to the $851 billion figure with diversified revenue strategies, such as improving voluntary compliance, updating technology, and considering the effect of deterrence through audits of wealthy taxpayers.
“The previous IRS estimates were limited to revenues generated by direct enforcement activities resulting from higher enforcement status,” Greg Leiserson, Treasury’s deputy secretary for tax analysis, said on a call with reporters. “This narrow focus does not consider the significant impact of the technology, data, and service improvements made possible by the [Inflation Reduction Act] or any deterrence effect that greater enforcement capabilities and activities would have.”
In 2022, the Congressional Budget Office estimate said an additional $180.4 billion would be generated from 2022 to 2031 by Inflation Reduction Act funding.
In the legislation, the IRS was allocated $80 billion over 10 years, but that figure was cut to $60 billion during negotiations over the debt ceiling. IRS officials said the study assumes full Inflation Reduction Act funding and sufficient additional funding.
Cutting the funding to $60 billion would reduce anticipated revenues by over $100 billion and halt IRS enforcement funding in 2029, two years earlier than under the Inflation Reduction Act, the IRS said.
Deep funding cuts over a decade resulted in numerous problems at the IRS, with the audit rate on millionaires dropping by over 70% from 2010 to 2019 and the audit rate on large corporations falling by over 50%. The Inflation Reduction Act allows the IRS to reverse these trends, officials said.
Enforcement efforts include expanded audits of the biggest corporations and complex partnerships; a focus on making sure foreign-owned corporations pay their U.S. taxes; and the collection of tax debt from 1,600 millionaires with at least $250,000 in back taxes, an effort that has so far recovered over $500 million.
Even the highest of the IRS’s revenue estimates does not close the tax gap — the difference between the estimated true tax liability for a given period and the amount of tax that is paid on time — which the IRS estimates to be $688 billion for tax year 2021.