The headquarters of the Internal Revenue Service in Washington, DC
Andrew Harrer | Bloomberg | Getty Images
According to a new report, wealthier Americans are getting their taxes checked at a much lower rate than over a decade ago, largely due to a shortage of staff and funding at the Internal Revenue Service.
The audit rate for Americans earning more than $ 5 million annually dropped from just over 2% in 2019 to more than 16% in 2010, according to a report by the Government Accountability Office, a federal watchdog. This means that only one in 50 high-income workers was audited in 2019, compared to around one in 6 in 2010.
The decline in audits, especially among the wealthy, has become a heated political problem in Washington. The report estimates that taxpayers underestimated their income tax by a total of $ 245 billion annually between 2011 and 2013 and states that “taxpayers are more likely to voluntarily comply with tax laws if they believe their tax return can be verified “.
The main reason for the decline, according to the report, is the lack of IRS funding. In fiscal year 2021, the agency’s budget was $ 11.9 billion, $ 200 million less than the 2010 budget.
The IRS has also seen its staff drop to the same levels as in 1973, despite having millions in extra trial returns and additional mandates. In March, the IRS said so it planned to hire 10,000 workers to deal with a 20 million backlog of unprocessed tax returns.
President Joe Biden and Democrats in Congress have proposed investing $ 80 billion in new technology and more auditors at the IRS to increase tax collection by $ 700 billion over 10 years. Republicans say the agency failed to provide adequate evidence of the size of the “tax gap” – or the amount of taxes not collected – and was subject to data leaks and inefficiency.
The decline in funding and auditors means that taxpayers, and especially the highest incomes, are far less likely to be caught underpaying taxes than they were a decade ago. Overall review rates for US taxpayers dropped to 0.2% in 2019 from 0.9% in 2010.
The rich are still controlled at a higher rate than the general taxpayer population. Yet their audit rates have declined at a much faster rate. The audit rate for taxpayers earning between $ 5 million and $ 10 million fell to 1.4% from 13.5%.
Those who earned more than $ 10 million saw their review rate drop to 3.9% in 2019 from 21.2% in 2010. The report states that review rates for workers over $ 10 million are slightly increased for fiscal years 2017 and 2018 due to a Treasury Department mandated to impose audit rates of at least 8% on those earning $ 10 million or more.
“This is further evidence of the consequences of two decades of IRS budget cuts,” said Howard Gleckman, a researcher at the Urban-Brookings Tax Policy Center at the Urban Institute. He added that, given the understaffing and IRS backlogs during the pandemic, “I suspect 2020 has been much worse.”