House passes bill to cancel hiring of more IRS agents, stop new audits

Republicans flexed their new House majority to take a first swipe at President Biden on Monday, approving a bill that would claw back tens of billions of dollars from the IRS that Democrats had hoped would help the tax agency audit more Americans.

The legislation cleared the chamber on a 221-210 party-line vote. New Speaker Kevin McCarthy oversaw the vote and announced the bill’s passage.

GOP lawmakers said the legislation is necessary to keep Americans from feeling the wrath of a supercharged IRS, after Democrats pumped roughly $80 billion into the agency in last year’s climate-spending legislation.

“Americans want an IRS that works for them, not against them,” said Rep. Adrian Smith, the Nebraska Republican who led the floor debate on the measure.

The Congressional Budget Office said the bill would claw back $71 billion.

If the money were reclaimed, though, it would sap the IRS’s future collections by roughly $186 billion. That means the bill would create a net loss of about $114 billion for Uncle Sam.

The bill, the first to clear the new GOP-led House, is not likely to see action in the Democrat-led Senate.

And if it were to somehow pass Congress, the White House promised Mr. Biden will veto it — the first in what’s likely to be a long list of veto showdowns between the president and House Republicans.

“With their first economic legislation of the new Congress, House Republicans are making clear that their top economic priority is to allow the rich and multi-billion dollar corporations to skip out on their taxes, while making life harder for ordinary, middle-class families that pay the taxes they owe,” the White House Budget Office said in an official statement of policy.

The White House also circulated a memo by the Center on Budget and Policy Priorities, a left-leaning think tank, that blasted the GOP bill as a “misleading gambit to protect interests of wealthy tax cheats.”

Chuck Marr, CBPP’s vice president for federal tax policy, said Republicans have constructed a straw man of 87,000 new “armed” IRS agents scouring the country looking for tax cheats.

In fact, he said, the 87,000 number is an IRS projection for total hiring over 10 years and would encompass not only revenue agents and auditors but, customer service, support and other personnel.

Besides, he said, the IRS needs more auditors and agents. The current number of auditors is 40% below the total in 2010.

The result is that only a fraction of high-dollar tax returns are audited, though audit rates have fallen across the board.

A Government Accountability Office report last year found that the IRS audited 2.35% of returns that reported at least $5 million in income in 2019. Less than one in 500 taxpayers reporting income of $25,000 to $500,000 were audited.

Democrats powered the additional IRS money through Congress last year using the budget process, which meant they could avoid having to face a Republican-led filibuster in the Senate.

The downside is that because of budget rules, they were unable to do much more than siphon the cash to the IRS, other than dividing the money into three general pots for technology upgrades, service improvements and enforcement.

That means it’s largely up to the IRS how to spend the money.

The Biden administration insisted it will rein in its new auditing strength. Treasury Secretary Janet Yellen said she wants the rate of audits for taxpayers making under $400,000 to remain the same as “historic” levels.

Mr. Smith said that even if Ms. Yellen is right and the rate remains the same, that would still mean 1.2 million more audits a year. He said 9 out of 10 of those audits will be on families making less than $400,000.

Democrats countered that giving up the revenue expected to result from the additional audits will blow a giant hole in future budgets, adding to the debt.

They said the GOP’s real goal was to protect wealthy taxpayers — and in particular, former President Donald Trump, whom Democrats targeted by releasing his tax returns late last year.

Senate Majority Leader Charles E. Schumer, New York Democrat, said the bill isn’t going anywhere in his chamber.

“The Senate Democratic majority knows this is a giveaway to the multi-millionaires and big corporations and Democrats won’t let it happen,” he said.