A year ago, I got a surprise at the mailbox.
The IRS wrote me a letter.
Our culture teaches us to be afraid when we hear from the Internal Revenue Service. But there was no need to fear.
The IRS had just mailed me a check for $50.
Nice.
But is this the way the tax thing is supposed to work? Didn’t they have it backwards?
Actually, it did work this way. My wife and I made a mistake on our taxes and paid too much. This was the IRS balancing the books.
Yeah, nice.
But then I looked again.
Turns out, the IRS wasn’t correcting the taxes we’d paid a few months earlier. It was for the previous tax year; in other words, they were sending back the $50 we’d mistakenly sent more than a year earlier.
What I got that day, in addition to the $50, was a lesson in just how bad the IRS has been hobbled.
A 20% budget cut (since 2010) will do that.
I think of that day as I listen to the current debate over the roughly $80 billion in additional funds the Democrats are devoting to the IRS over the next 10 years in the new tax, climate and health care law. (I hesitate to call it by its formal name, the Inflation Reduction Act, because most analysts I’ve read say it will do little to curb inflation in the short term.)
Still, congressional Republicans aren’t being straight with Americans, warning that 87,000 new IRS agents (many of them armed!) will descend on middle-class families and small businesses to audit their returns. Sen. Chuck Grassley is among the culprits here.
Multiple fact checkers have debunked several aspects of their claims.
It’s true that $46.5 billion will go to tax enforcement. But $30 billion will go to IRS operations and modernizing business systems. The IRS uses some woefully out of date computers.
Another $3 billion will go to taxpayer services.
All of which is very much needed.
I’m not the only one who’s had to wait on the IRS. The backlog is mind-boggling. Catherine Rampell of the Washington Post, had a fascinating column earlier this month, reporting that the IRS said it had on hand 10 million unprocessed individual returns tax returns as of July 29.
The column showed stacks of returns piling up in the cafeteria at the IRS’s Austin, Texas, office.
I’m not sure where they’re storing the rest. The IRS can’t have that many cafeterias, can it?
The Post also reported that during the 2022 filing season, only 10% of taxpayer phone calls got answered. Out of 73 million calls.
That’s a lot of people on hold.
Some folks might like the idea of a neutered IRS, but not those of us who are paying our fair share of taxes (and, on some occasions, a bit more than our fair share.) It would be nice if the agency could return our calls, process our forms – and collect all those taxes that are owed but have not been paid. The IRS estimates the annual “tax gap” amounts to hundreds of billions of dollars.
It stands to reason this new money will mean more audits.
The Democrats say they’re going after the rich, and that households making less than $400,000 won’t have higher audit rates than what they’ve been experiencing in recent years.
As it is, the odds of getting audited are relatively small, and it’s declined sharply over the last decade or so. A Government Accountability Office report in May said that for individual returns with incomes between $50,000 and $100,000, the audit rate in 2019 was 0.1%. The study looked at nearly 157 million returns overall.
The thing is that’s sharply down from 2010. A dozen years ago the audit rate for returns between $50,000 and $100,000 was 0.7%. For filers making more than $1 million a year, the decline in audit rates is even more sharp. For returns with incomes between $5 million and $10 million, the audit rate fell from 13.5% to 1.4%.
That said, some folks down the income ladder might have some reason for concern.
Audit rates for returns claiming the Earned Income Tax Credit have been higher than those up the income scale. (This credit is for low- to moderate income families. To be eligible for the EITC, a family of four must have adjusted gross incomes of less than $55,529.)
The IRS has said returns claiming this credit are easy to audit and they’re needed to prevent ineligible filers from claiming the credit, the GAO report said. The IRS has said improper EITC payments amounted to 25% in 2019. It also has said that audit rates for these returns are declining.
One other thing about this new law. It requires the IRS to study a way to develop an effective system for people to file their taxes free.
A study doesn’t seem like a big step, but it’s a start. Wouldn’t it be nice to file a simple return for free, rather than having to pay a tax preparation service?
To put it charitably, the current free file program is tough to use. And tax experts say most people in this country should be able to file a simple return on their own.
All of this may not be as exciting, or fear-inducing, as the prospect of thousands of armed IRS agents in body armor pounding on your door. But it is the kind of stuff that seems most at issue for the IRS.
Ultimately, it would be great if the nation’s tax collector had enough money to pick up the phone when somebody calls. And it would be in all our interests if the agency was given the tools to cut the massive backlog of unprocessed returns — and reduce the amount of the tax gap.
And on those occasions when a taxpayer sends in too much money, it would be good to get that money back — before inflation has taken too big a bite out of it.
Postscript
A quick note of thanks to the people who subscribed last week, when I launched this newsletter.
I was encouraged that so many people signed up.
My goal with Along the Mississippi is to report on issues that matter to the people of the Quad-Cities, and beyond.
Sometimes, that will be a purely local issue; at other times, like today, it will be about something that affects us all. Like taxes.
Along the Mississippi is a proud member of the Iowa Writers’ Collaborative, a collection of writers and journalists from across the state. I hope you’ll check out their work, too. I’ve linked a post that highlights the recent work of those of us in the collaborative.
I’ll leave you today with a few recent news stories that are worth exploring.
Democratic candidates running for Congress are treading lightly around President Biden’s college debt forgiveness program. As Tom Barton writes in The Gazette, U.S. Senate candidate Mike Franken and state Sen. Liz Mathis, who’s running against U.S. Rep. Ashley Hinson, complained the debt relief plan doesn’t fix the problem of college affordability. Iowans have some of the highest college debt in the country, but there’s a whole lot of folks in this state who didn’t go to college.
The Scott County Board of Supervisors has taken up a measure to regulate solar panel farms. The regulations will make it all but impossible to locate them in the county, according to industry officials and solar supporters. The ordinance still has two readings before it is final, but it looks like it’s got a head of steam. Mark Ridolfi of the North Scott Press has been following this for quite a while, and you can read his coverage here.
In Rock Island, officials hope they’re on the way toward reviving the city’s downtown area. Once a thriving hub of entertainment, the downtown has lost some of its luster over the last few years. However, the receipt of state funding and a strategic plan to improve the area is giving some folks hope for a rebound. My friends at the Quad-Cities Regional Business Journal have been writing about that.
Finally, here’s a column that ran earlier this month, but it’s definitely worth your time. Some background: The Washington Post recently had a story that declared Iowa the most Midwest state. Some folks from Illinois might argue that point (The Land of Lincoln finished in the middle of the pack). At any rate, Art Cullen, editor of the Storm Lake Times Pilot, who also is part of the Iowa Writers’ Collaborative, riffs on it as only he can.
Thanks for reading. I’ll see you soon.