Analysis reveals positive impact of Inflation Reduction Act on returns

Reimagining the Benefits of IRA Investment in the IRS

Reimagining the Benefits of IRA Investment in the IRS

The Power of IRA Investment

Recent analysis from the U.S. Department of the Treasury and Internal Revenue Service (IRS) has revealed the substantial return on investment provided by the Inflation Reduction Act (IRA). By taking a comprehensive approach to evaluating the transformative initiatives enabled by the IRA, the IRS estimates that this investment could increase revenue by as much as $561 billion over the period of 2024-2034. This figure significantly surpasses previous estimates, indicating the immense potential for financial growth. Furthermore, if IRA funding is renewed upon expiration, as proposed by the Administration, estimated revenues could reach an impressive $851 billion.

A Holistic Approach to Revenue Estimation

Prior to this analysis, the IRS’s estimates of IRA revenues were limited to those generated directly from enforcement activities resulting from increased staffing. However, this narrow focus failed to capture the full range of revenue-boosting opportunities offered by the IRA’s technology, data, and service improvements. To provide a more comprehensive picture of the revenue benefits, the IRS acknowledges the need for a broader examination of funding impacts. By considering enhanced services, voluntary compliance, modernized technology, and analytical advances, the potential for revenue growth becomes more apparent. Additionally, the deterrence effect of compliance activities on taxpayers’ behavior must be taken into account to accurately assess the overall impact on revenue collection.

Maximizing Revenue Potential through IT Modernization

The new analysis highlights the wide array of potential revenue benefits that come with IT modernization. By expanding data intake capacity and productivity, compliance can be increased. Improved audit selection and collection planning also have the potential to enhance productivity in enforcement activities. Drawing upon the experience of the State of California, which underwent tax administration infrastructure modernization, it is clear that these improvements can lead to a substantial increase in revenue.

The Path to More Comprehensive Revenue Estimates

The newly released estimates are just the first step towards developing more comprehensive revenue estimates for IRS funding. By incorporating the benefits of improved technology, data analytics, and service, as well as considering the impact of deterrence on audited wealthy taxpayers, a more accurate assessment of revenue potential is achieved. However, further research is needed, and both the Treasury and the IRS will continue to study these issues and encourage external research on these important topics.

The Consequences of Repealing or Reducing IRA Investment

The findings of this analysis shed light on the consequences of repealing or reducing the historic investment in the IRS. A $20 billion rescission, for example, would result in a revenue reduction of over $100 billion. While enforcement against big corporations and wealthy taxpayers would still be possible in the coming years, the rescissions would cause IRA enforcement funding to run out in 2029, two years earlier than expected. This would lead to a decrease in revenue raised in 2029 and subsequent years. To prevent this, the Administration has proposed extending and maintaining IRS investments beyond the expiration of IRA funds, allowing for the collection of $851 billion over 2024-2034. On the other hand, further rescissions or cuts to IRS base funding would further diminish revenue collections and potentially reverse the progress made in taxpayer service improvements and enforcement efforts.

Addressing Funding Cuts and the Tax Gap

The IRA investments in the IRS were necessitated by a decade of deep funding cuts that resulted in unacceptable service levels, hindered technological upgrades, and undermined enforcement efforts, particularly regarding wealthy individuals and large corporations. These cuts led to a significant decline in audit rates for millionaires and large corporations, and the tax gap has grown to over $600 billion annually.

Reversing the Trend: Making Wealthy Taxpayers and Big Corporations Pay Their Taxes

The IRA is instrumental in reversing the trend of tax evasion by wealthy taxpayers and big corporations. The IRS has already implemented a range of enforcement efforts targeting these groups, including expanded audits, a focus on underpaying foreign-owned corporations, and a campaign to collect tax debt from millionaires. These efforts have already recovered over $500 million. Simultaneously, the IRS is committed to implementing the IRA in a manner that ensures audit rates for small businesses and taxpayers earning less than $400,000 will not increase relative to historic levels.

Benefits for All Taxpayers

Furthermore, the IRA’s initiatives outlined in the Strategic Operating Plan (SOP) will benefit all taxpayers. The SOP details how IRA resources will be used to provide world-class customer service, clearer tax filing guidance, increased options for electronic filing, and robust online accounts. These improvements will empower individuals and businesses to file quickly and independently, ensuring accurate tax filings and access to eligible tax benefits.

Read More of this Story at – 2024-02-08 23:24:27

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