Aug 11, 2022

IRS funding.

IRS funding.
Photo by Kelly Sikkema / Unsplash

Plus, a question about Adam Schiff.

I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum on the news of the day — then “my take.”

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Today's read: 13 minutes.

Should we increase the IRS funding? Plus, a question about Adam Schiff.

Photo by Kelly Sikkema / Unsplash

See you tomorrow?

In tomorrow's subscribers-only post, I'm going to answer one of the most common questions I get in Tangle: "Which party is more extreme?" There has been some interesting writing about this topic recently, which I'd like to analyze. Given how many readers have written about this over the years, I think it'll be an interesting topic to dive into.


Quick hits.

  1. During a deposition with New York state Attorney General Letitia James, former President Donald Trump invoked the fifth amendment and declined to answer questions. James is investigating the Trump Organization for financial fraud. (The interview)
  2. Former Secretary of State Mike Pompeo was also a target in a plot by Iranian operatives to murder former Trump advisor John Bolton, according to the Justice Department. (The charges)
  3. President Biden signed the PACT Act into law, expanding veterans’ healthcare benefits and addressing exposure to toxic chemicals on military bases. (The bill)
  4. The average price of a gallon of gasoline fell below $4 for the first time in four months. (The prices)
  5. Ukraine said nine Russian warplanes were destroyed in blasts at an airfield in Crimea, but did not take credit for the attack. Russia said the blasts were not caused by an attack and that no aircraft were destroyed, an account undermined by satellite imagery. (The blast)

Our 'Quick Hits' section is created in partnership with Ground News, a website and app that rates the bias of news coverage and news outlets.


Today's topic.

Funding the IRS. On Sunday, Senate Democrats passed their climate, health care and tax package. Part of the package includes $80 billion in funding for the Internal Revenue Service over 10 years, which would almost double the agency’s current budget.

The nonpartisan Congressional Budget Office estimated that increased funding would bring in over $200 billion of new revenue. The idea is that by better funding the IRS, the organization could ramp up enforcement on tax evaders and bring in more revenue. Over the long term, the funding would pay for itself and eventually reduce the deficit (the year-over-year debt accrued by the government).

The funding is divided into about $45.6 billion of discretionary appropriations (used for enforcement activities), with the remaining money designated as mandatory funding (used for operational support, modernizing the IRS, and taxpayer services).

Currently, the IRS audit rate is at a decade-long low. The agency has about 80,000 workers, but has lost 50,000 employees over the past five years due to attrition. Budget cuts, largely driven by Republicans, have resulted in a 30% drop in enforcement staff since 2010, while the filing population keeps growing.

But the decision to beef up funding has been very controversial. Republican lawmakers have warned that such enforcement would end up disproportionately targeting middle and lower-income households who can't afford tax lawyers and experts to help navigate an IRS audit.

In a statement, the Treasury Department claimed that households earning less than $400,000 "will likely see the chance of an audit decline... Instead, new funding will crack down on tax evaders among the wealthy and large corporations, invest in technology upgrades that help taxpayers, and hire more customer support staff to prevent backlogs."

This has set off a debate about whether beefing up IRS funding is a good idea or not. In fact, we initially covered this issue in July of 2021, which you can read here. We're going to revisit it today, now that the new funding has been approved.

Below, you'll see some views from the left and right, then my take.


What the left is saying.

  • The left argues that the IRS has been starved of funding, and needs the money to update its systems and increase its workforce.
  • Many point out the potentially huge increases in revenue, and the estimates about how much more money can be raised.
  • Some say the enforcement will yield the best returns by focusing on the rich.

In The Washington Post, Catherine Rampell said if you want to know why the IRS needs $80 billion, just look at its cafeteria, which resembles a giant library of manila folders.

"It’s part of what the IRS calls the 'Pipeline': a 1970s-era assembly line used to process tax returns at several locations around the country," she wrote. "And it might give you a sense of why Congress is on the verge of handing the agency $80 billion through the Inflation Reduction Act — not only for more enforcement but also for tech modernization. As of July 29, the IRS had a backlog of 10.2 million unprocessed individual returns. Blame the pandemic, sure, but also the agency’s embarrassingly outdated, paper-based system, which leaves stacks and stacks of returns cluttering shelves, hallways and even the cafeteria. On the Pipeline, paper tax returns aren’t scanned into computers; instead, IRS employees manually keystroke the numbers from each document into the system, digit by digit.

"Taxpayers are trapped in this time warp because Congress has systemically underinvested in the IRS," she said. "Its funding was cut for most of the past decade, despite the agency receiving evermore responsibilities: stimulus checks, child tax credit payments, Obamacare enforcement, foreign bank account tracking and, lately, hunting down Russian yachts. Without reliable, long-term funding guarantees, the IRS has struggled to upgrade its systems... Treasury and IRS officials say they hope additional funding will allow them to automate more of this process, so returns can move through more swiftly. They’re not particularly worried about employees getting displaced by automation; about a third of IRS employees are already eligible for retirement. There’s also more than enough work to go around. (See: that 10.2-million-return backlog.)"

In April, The Washington Post editorial board said the IRS urgently needs more money and staff.

"The IRS is currently limping along without enough staff or funding. Congress, especially Republicans, needs to face up to reality," the board wrote. "The IRS still manually enters the information on paper tax returns into its computing system because its technology is so outdated. There’s a massive backlog of more than 7 million unprocessed individual tax returns from last year, largely because the IRS doesn’t have enough staff and resources. Getting anyone at the IRS to answer the phone is practically miraculous. These delays have caused serious hardships for families waiting for thousands of dollars in refunds or trying to apply for loans but not having last year’s tax returns available.

"It’s not a mystery how the IRS deteriorated. While the pandemic certainly caused additional strain on the agency, the core problem is that Republicans slashed the IRS budget about 18 percent in the past decade," the board added. "That’s not belt-tightening, it’s gutting an agency. It’s no wonder staffing declined 20 percent, and the IRS now has the fewest auditors since 1953. Having a fully functioning tax collection agency is fundamental to American democracy and the economy. Taxes are the main funding source for everything from the U.S. military to Medicare and Social Security. Individual income taxes alone make up half of federal revenue. Fixing the IRS should be as urgent — if not more — than rebuilding crumbling roads and bridges."

In The Los Angeles Times, Michael Hiltzik said the IRS funding will be a victory against wealthy tax cheats.

"The conclusion has also come from economists at the IRS, Carnegie Mellon University and UC Berkeley, who showed last year that America’s tax-cheats-in-chief are the 1%, who consistently concealed as much as 21% of their income from tax collectors," he wrote. "Of the unreported income, about 6 percentage points is hidden by 'sophisticated evasion that goes undetected in random audits,' their paper said. [Byron] York and his conservative fellows have been attacking the IRS funding by suggesting that the army of some 80,000 new agents and other employees will turn their firepower on middle- and upper-middle-class Americans and small businesses, not on the wealthy. But that’s just scare-mongering.

"Each budget cut, whether measured in real or inflation-adjusted dollars, hamstrung the agency’s ability to do its job. Taxpayer services shrank, callers with even ordinary questions were placed on hours-long holds — if they could get through at all," Hiltzik said. "This lowered the agency’s public reputation to a subterranean level. Who benefited? The rich, that’s who. Audits of the wealthy became an endangered species. In 2010, the audit rate of personal tax returns reporting income of $10 million or more was 21.2%. By 2019, the Government Accountability Office reported, it had fallen to 3.9%. This in a period when the number of those returns nearly doubled, rising from 13,000 to 24,000. The low water mark may have been reached in 2019, when the IRS received more than 23,450 tax returns from households reporting $10 million or more in income for 2018. It audited seven. (Not a misprint.)


What the right is saying.

  • The right warns that the beefed up funding will end up targeting middle class Americans.
  • Some call out how the same bill that beefs up enforcement increases tax credits and shortcuts, which makes the system more complicated.
  • Many argue the IRS will have to target lower-income tax brackets in order to raise the revenue it says it will.

In The Washington Examiner, Byron York wrote about the 86,852 new IRS employees.

"The number seems too big to believe. The IRS has just 93,654 employees, according to the Office of Personnel Management. Why would Congress, in one bill, increase the IRS workforce by something like 92%? It doesn't seem possible. It certainly doesn't seem wise. It's not wise, but it is possible. And that is what 50 Senate Democrats, along with tiebreaking Vice President Kamala Harris, did when they passed the Inflation Reduction Act, which gives roughly $80 billion to the IRS between now and 2031," he wrote. "It's fair to say that Democrats are always searching for ways to wring more cash out of taxpayers. The obvious way to do that is to raise taxes. But the largest number of tax collections is in the vast middle of the income scale. To raise taxes on the middle class is politically unpopular.

"So Democrats pledge to raise taxes on the 'rich' and 'rich corporations.' The other way Democrats have sought to raise more taxpayer dollars is by beefing up the IRS. The idea is that Americans are evading all sorts of taxes, creating a 'tax gap' — according to the Treasury Department, 'the difference between taxes owed to the government and actually paid.' The Biden administration says tax cheats are primarily 'high-income,'" York wrote. "The problem is what the problem always is: The big money is in the big middle class. Workers who make more than $400,000 — that includes people right at that number up to super-billionaires — are only about 1.8% of all taxpayers, even though they account for about 25% of the nation's income. The other 98.2%, making up about 75% of the nation's income, is a lot bigger. And indeed, that's where much of current IRS enforcement is focused. The same will likely be true of the new, muscled-up IRS."

The Wall Street Journal editorial board said the IRS is about "to go beast mode."

"Democrats claim this 'investment' will yield more than $200 billion in revenue. That estimate is highly speculative, but if it’s anywhere close to right IRS auditors will soon be coming after tens of millions of Americans. The $80 billion is more than six times the current annual IRS budget of $12.6 billion. The money will be ladled out over nine years and comes with few strings attached. The main Democratic command is for the tax agency to bring the hammer down on taxpayers," the board said. "The bill earmarks $45.6 billion for 'enforcement,' including 'litigation,' 'criminal investigations,' 'investigative technology,' 'digital asset monitoring' and a new fleet of tax-collector cars. The result will be far more audits, civil suits and criminal referrals.

"The main targets will by necessity be the middle- and upper-middle class because that’s where the money is," the board said. "The Joint Committee on Taxation, Congress’s official tax scorekeeper, says that from 78% to 90% of the money raised from under-reported income would likely come from those making less than $200,000 a year. Only 4% to 9% would come from those making more than $500,000. The IRS knows the super-wealthy employ lawyers and accountants who make litigation time-consuming and risky. It also knows that Democrats would howl if the agency pursues fraud in the earned-income tax credit program, despite what the IRS has estimated are $18 billion in improper payments each year."

In Cato, Chris Edwards wrote about the IRS funding hypocrisy.

"It’s nearly impossible for taxpayers to contact the IRS for timely answers to filing questions, but the Senate bill devotes just $3.2 billion of the new spending to 'taxpayer services.' The lion’s share—$46 billion—goes toward jacking up IRS enforcement," Edwards said. "The thrust of the bill is against the people, not for the people to understand the code and voluntarily comply. Senators supporting the bill talk about 'tax cheats' and 'closing tax loopholes.' But this is a huge hypocrisy. The Senate bill itself creates new loopholes and tax breaks, and complicated breaks drive noncompliance with the tax system. The Senate bill would expand a slew of special interest credits and other breaks within a $370 billion orgy of green subsidies and corporate welfare.

"All these clean breaks will make the tax code a mess. IRS administration will be more difficult, and aggressive taxpayers will have more margins to twist the code into gray areas," Edwards said. "Battles between taxpayers and the IRS will grow. Law and accounting firms specializing in green breaks will prosper. Senate bill supporters don’t seem worried about growing tax code complexity. They assume the bill makes sense because the $80 billion of IRS funding is supposed to raise $204 billion in government revenues. But that ignores the added costs and loss of civil liberties imposed on individuals and businesses. More aggressive IRS enforcement will mean more paperwork, more lawyer fees, more time wasted on tax planning, more anguish and uncertainty, less privacy, and less personal financial security. Government will win, but society will lose."


My take.

Reminder: "My take" is a section where I give myself space to share my own personal opinion. It is meant to be one perspective amid many others. If you have feedback, criticism, or compliments, you can reply to this email and write in. If you're a paying subscriber, you can also leave a comment.

When we covered this a year ago, I wrote about my emotional response vs. my analytical one. My emotional response, then and now, is that beefing up an agency like the IRS is a terrible idea, and the last thing I want is a well-funded arm of bureaucrats coming for middle class Americans who can't afford to defend themselves while the rich and corporations continue to skirt tax laws left and right. The GOP talking point here resonates deeply: Who wants 87,000 more IRS employees to increase the odds of being audited? Especially when it’s likely they'll focus on the income earners who yield the highest return for the lowest dedicated resources (which is most of us).

The analytical response is a little different. I was particularly moved by Catherine Rampell's piece, which includes photos of what the inside of the IRS looks like (imagine being transported back to a 1970s office). Forget who will end up forking over more cash for a minute; the absurdity of such an important government agency living in a five-decades-old technological era is baffling. At the very least, the IRS needs a lot more money to modernize and enter into the 21st century.

I've also been moved by my experience over the last year as a newly minted small business owner. Earlier this year, I got a letter from the IRS about my 2020 taxes, about a year and a half after they were filed, and a claim that I owed close to $6,000 of unpaid additional taxes. The upshot of what happened was that the IRS was counting revenue I never received because Stripe (my payment processor for Tangle) takes a cut before the money gets paid out to me. Thankfully, I have two friends who help me do my taxes, and with their free services I was able to explain the discrepancy away to the IRS over a months-long back and forth document fax fest. But it wasn't easy. And it made it clear to me just how archaic the system is.

I'm still struggling about where I land here, but I do think a general position is starting to form for me. It goes a little something like this: Tax codes are law. Some people violate them accidentally, because they are complicated, while others intentionally cheat them to save money. This lends itself nicely to the Republican talking point that the tax code really needs to be simplified, and that the one easy way to make all of this easier would be to untangle the mess that is our tax system.

At the same time, one of the underpinnings of the Republican talking point here that bothers me is the idea that these laws are, or should be, flexible, simply because they are taxes and some people make mistakes. The fact that there are people out there not paying what they really owe in taxes seems less important to the right than the fear of the government "forcing" people to pay what they owe in taxes. In a weird way, the conversation is making victims out of people who are skirting the laws many Americans simply follow, whether intentionally or not.

And trust me: I get the frustration. I do my best to understand every tax rule there is so that I can legally write off appropriate expenses and bring down my overall tax bill. But I also go through the enormous and arduous work of trying to pay my taxes correctly and legally. It's a little frustrating to see the argument develop that everyone else doesn't have to do that, on account of having a "screw the government" attitude.

It seems obvious to me that beefing up the IRS with billions of dollars to modernize the system and make it so you don't have to wait months to talk to an IRS employee is a no-brainer. This would both benefit a lot of Americans who want to get money the IRS owes them back in a more timely fashion, and allow people to address errors in their filing more easily (so they don’t get audited). The state of the IRS now is truly unacceptable. They do need more funding, they do need modern computer systems, they do need more employees; they need a total functionality makeover. I'm supportive of this.

The enforcement element is a bit trickier. The most emotionally compelling argument against it, in my opinion, is that the infusion of funding will ramp up enforcement on middle class Americans at a time when tax credits and loopholes are being created for corporate giants that Democrats like. Still, as it stands today, the IRS audits people making less than $25,000 and more than $500,000 at the highest rates. Since some very wealthy individuals aren’t reporting a lot of income, that doesn’t necessarily mean audit rates are necessarily higher for the most poor. But the data is still informative in a lot of ways.

A government accountability study found that audit rates for those reporting less than $25,000 of income per year was 0.40%; for those reporting $25,000 to $200,000, it was 0.17%; for those reporting $200,000 to $500,000, it was 0.17%; for those reporting $500,000 to $1 million, it was 0.53%; for those reporting $1 million to $5 million, it was 1.02%; and income earners reporting $5 million or more had an audit rate of 2.35%.

Given that only seven households of the 23,450 reporting $10 million or more were audited in 2018, I think we can all agree some increased enforcement at the very top would be money well spent. And since just over 6% of American households bring in $200,000 or more, yet see some of the lowest audit rates there are, it seems like they are the ones least under the thumb of the IRS.

In the interest of fairness, there is really only one good outcome here, which is for the beefed up enforcement funding to make rates more even across the higher income brackets ($200,000 and up). Right now, those at the bottom and the very top seem to be getting audited the most. As much as it draws my emotional resistance, that means increasing audits on the vast middle class is going to be necessary. Given that the super wealthy are the best at repelling audits, it also makes sense to dedicate more resources to those audits, even if rates don’t have to immediately go up. With a much larger force, in the long term, this should mean everyone in every income bracket sees an increased level of scrutiny.

For conservatives, I think the framing here could be very Republican-esque: It's the rule of law. We all have to pay taxes, we should all follow the same rules and pay what we owe. Right now, there aren't enough "cops" to enforce the law, and they're fighting with 50-year-old tools. Let's grow the force and update the systems so it’s easier for people to comply and for laws to be enforced. For Democrats, the framing here is about executing the promise of the Inflation Reduction Act: This beefed up enforcement is part of closing the tax gap and raising revenue. In order to do that, and to bring in the revenue to pay for their bill, the IRS is going to have to beef up enforcement on the middle and upper-middle class — not just on the super wealthy. And it’s also going to have to modernize.


Your questions, answered.

Q: What was Adam Schiff's big lie?  My husband has decided that Mr. Schiff has been lying all along and believes he should be prosecuted for abuse of power.  You mentioned that he edited a video for the Jan 6. Committee in order to make Trump look bad.  What else has Schiff done?  How do his lies compare to those of others in power?

— Cindy, St. Louis, Missouri

Tangle: Adam Schiff is definitely in a category of politicians whose word I don't trust. I think the most famous Schiff fib was the claim, in 2016, that Congress had uncovered a criminal conspiracy by Trump's 2016 campaign and that he was in possession of "smoking gun" evidence.

Schiff never produced any such smoking gun. When he was pressed on this by Meghan McCain, he insisted the smoking gun was in plain sight, which — as National Review's David Harsanyi put it — "was the opposite of his claim that he had uncovered a seditious and clandestine conspiracy." The Wall Street Journal editorial board also ran a damning column on what Schiff knew (and what he concealed) about the investigation into Trump.

Schiff also lied in 2019 when he claimed he had not spoken to Alexander Vindman, the whistleblower who helped set off Trump's impeachment.

I think, on the whole, the biggest thing about Schiff is that he loves to be on television, and he seems to spend more time on cable news shows than he does at work. Throughout those appearances, he has made a lot of bold claims — specifically about Trump — that simply haven't panned out. He was also one of the top purveyors of the Steele Dossier, for instance, and then took no responsibility when the contents of the dossier were undermined and discredited.

Given Schiff's enormous power as the chair of the House Intelligence Committee, his actions have made him one of the top public enemies of Trump and many conservatives. A few have even called for him to be investigated.

Want to ask a question? You can reply to this email and write in (it goes straight to my inbox) or fill out this form.


A story that matters.

Pew Research Center surveyed teenagers from across America between the ages of 13 and 17 years old. They found that use of Facebook and Twitter is plummeting among teens, while YouTube, TikTok and Instagram are the most popular social media platforms. 95% of all teens said they use YouTube, while 67% said they use TikTok and 62% said they use Instagram. 16% of teens said they use TikTok almost constantly, and about 19% said they use YouTube almost constantly. 55% of teens said they spend about the right amount of time on these platforms while 36% said they spend too much time and just 8% said they don't spend enough time. The research paints the picture of an ever-changing social media landscape. Pew has the research.


Numbers.

  • $3.99. The average price of a gallon of gasoline in the U.S., as of Thursday, August 11th.
  • $5.02. The average price when gas was at its peak in June.
  • 440. The number of times President Trump reportedly invoked the Fifth amendment during his deposition with New York's attorney general.
  • 54%. The percentage of Americans who say they rarely or never wear a mask indoors when around people outside their household, double the number from January.
  • 16%. The audit rate for Americans making more than $5 million in 2010.
  • 2%. The audit rate for those Americans in 2019.
  • $441 billion. The average annual "tax gap" — the amount of unpaid taxes — between 2011 and 2013.

Have a nice day.

A Michigan man is becoming an internet sensation (in more ways than one) after building his own custom Internet Service Provider network. Now, he's getting some government help. Jared Mauch built a fiber-to-home internet connection and became a provider because he couldn't get good broadband from AT&T and Comcast in his rural Michigan neighborhood. He started out by providing internet to 30 homes with his own ISP, Washtenaw Fiber Properties LLC. Now, with the help of $2.6 million in government infrastructure money, Mauch is expanding to 600 more properties. The government allocated his county some $71 million in funding for infrastructure projects, and Mauch successfully applied for funding to expand his broadband ISP project. Ars Technica has the story.


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Isaac Saul
I'm a politics reporter who grew up in Bucks County, PA — one of the most politically divided counties in America. I'm trying to fix the way we consume political news.