IRS to Prepare Taxes for Low-Income Americans, Another Unfair Advantage for the Rich

As a former member of Congress, I couldn’t be more concerned about the Internal Revenue Service’s recent launch of Direct File. This pilot program will allow the agency to prepare taxes for certain Americans earning less than $125,000.

Over the years, the Legislature has subjected the IRS to significant budget cuts. Despite modest increases in recent years, the agency’s congressional appropriation line has remained nearly 20 percent below its 2010 level, when adjusted for inflation.

The IRS promised Congress that it would start going after wealthy tax evaders if it increased this funding allocation. Congress agreed, providing the agency with $80 billion in funding as part of the Inflation Reduction Act.

But now, with Direct File, the IRS is once again focusing on low- and middle-income Americans. Disappointing, but not surprising. For decades, the IRS favored targeting Main Street.

A Syracuse University study of 2022 IRS tax audit data found that taxpayers in the lowest income bracket were five times more likely to face IRS audits than members of the highest income bracket. They received almost double the audits they did in 2020. This is unacceptable.

The African American community is among the hardest hit by this auditing disparity. Responding to pressure from Congress, the IRS acknowledged as much in May, saying, “Black taxpayers are audited at a rate three to five times higher than non-black taxpayers.”

The IRS does not focus on Wall Street for various reasons; some of which are easy to spot, others are institutional and more subtle. However, focusing primarily on Main Street is the simplest way to maximize federal government revenue.

According to a recent study by the National Bureau of Economic Research, the richest Americans hide more than 20% of their income from the IRS. Although legal, wealthier Americans can use a variety of tactics that are not available to most Americans, from hiring expensive lawyers to illegally relocating their assets.

Low- and middle-income families don’t have the same financial resources to evade the agency, so the IRS chooses the easiest solutions to meet its revenue collection goals rather than investigating the cause main problem.

Main Street is not the problem with the American economy; Wall Street is. The richest 1% account for 28% of the country’s total unpaid tax bill. By comparison, the top 5% missed out on more than $300 billion, or more than half of the revenue the IRS is currently missing.

Rather than devoting more of its resources to targeting ordinary families with Direct File, the IRS should follow through on its representations to Congress. He should use the new funding he received to attack the heart of the nation’s tax gap problem: tax avoidance by wealthy and well-connected Americans. While this may not be the easiest or most practical undertaking for the agency, the IRS has been successful in doing this before.

For example, in 2008, the IRS worked with the Department of Justice to create a Voluntary Offshore Disclosure Program, which allowed tax evaders to disclose their hidden offshore assets in exchange for immunity from prosecution. The initiative worked remarkably well, resulting in a billion-dollar shortfall for the IRS. The same thing can be done today if the IRS gives this or similar initiatives a chance.

Main Street is tired of feeling disenfranchised by its government. He is fed up with growing trends in income and wealth inequality in the United States and what he perceives as the scales of justice constantly tipping in favor of the privileged class.

The IRS abandoning Direct File and focusing on wealthy tax cheats won’t solve this problem overnight. It will, however, help restore Main Street America’s confidence in the agency while addressing the root of one of the nation’s biggest economic problems. This is an opportunity the IRS cannot afford to turn down.

Michael Arcuri, Democrat, is a former congressman from New York.

InsideSources.com