After successfully passing the COVID-19 stimulus bill, the Biden administration is rolling full steam ahead, this time with its fiscal 2022 budget, which includes a proposed 10.4% increase—over $1 billion—in funding for the Internal Revenue Service.
The proposed budget also includes an additional $417 million to be used by the IRS towards tax enforcement, as part of a larger initiative to increase taxpayer compliance and revenues. The purpose is to help the agency increase its audits of large corporations and the wealthy to ensure tax compliance.
After years of budget cuts and layoffs, the increased funding has support from both Democrats and Republicans. The expected revenue from IRS’ increased auditing and enforcement efforts would be used toward other Biden administration initiatives, including to fund the infrastructure program.
According to IRS Commissioner Charles Rettig, every additional dollar of funding can potentially result in an extra $5 to $7 collected in taxes. If effective, increased tax enforcement and compliance could be a possible workaround to the proposed tax hikes on the wealthy, though the Biden administration still seems set on doing both.
Experts warn, however, against any specific audit levels or target quotas aimed at high-net-worth individuals and corporations and instead recommend on focusing on audits that have been overlooked as a result of budget cuts. Otherwise, it could send the wrong signal that the wealthier companies and individuals are being targeted because of who they are and not because of problems with their tax returns.