How the Inflation Reduction Act could affect your taxes

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• Judy Woodruff:

  There is a $1 trillion gap between what Americans owe in taxes and what the federal government collects. The Democrats budget bill that is expected to win final approval in the House this week would unleash funds that could help round up all that missing money.

  Congressional correspondent Lisa Desjardins has more.

• Lisa Desjardins:

  Judy, the so-called Inflation Reduction Act would dramatically increase funding for the IRS some $80 billion over the next 10 years. Democrats say that gets the agency back on its feet, able to find more tax cheats after years of budget cuts. Republicans say it's dangerous and will target American families for audits.

  Joining me now to understand more is former IRS Commissioner John Koskinen.

  Thank you so much for joining us.

  I want to start with some baseline facts here about the IRS. First of all, since 2010, the IRS has seen significant budget cuts, nearly 20 percent, and their staff numbers are down about that same amount. The agency currently has about 80,000 full-time staffers, for reference.

  John Koskinen, this bill could double that amount, adding another 80,000 plus staffers over 10 years. Does the IRS really need that many? Is the problem that large?

• John Koskinen, Former IRS Commissioner:

  Well, I'm not sure how they came up with the 80,000 number.

  Between now and 2031, when the bill expires and the funding expires, anywhere from 35,000 to as many as 50,000 employees will retire because they're eligible to retire. So a lot of — they will have a lot to be replaced.

  But in terms of the growth of the IRS, I always thought that, if I could get back the 20,000 that I lost while I was there, that would be a major step forward.

• Lisa Desjardins:

  What is the need, then? What have the budget cuts done? What did you see them doing? And what's your understanding now of the agency?

• John Koskinen:

  Well, I think this funding is going to be a sea change for the IRS. Obviously, it's a lot more fun to try to figure out how to spend money effectively than to deal with ongoing budget cuts, which has been the situation for the last 10 or 12 years.

  The IRS won't be starting from scratch. It has a lot of plans in place to improve taxpayer service, to modernize its information technology systems, and to catch up in its enforcement. The audit rate is down by over 50 percent. So that means a lot of people who should be audited, who are cutting corners or even cheating, are getting away with it because there aren't enough revenue officers and revenue agents.

  I think, basically, though, the people who are going to benefit most from this are taxpayers.

• Lisa Desjardins:

  It's interesting, because that's Republicans' criticism.

  They say that all of these new IRS workers, especially the new auditors, could target American families. And I want to play one of the critics. This was Senator Marco Rubio speaking in the Senate chamber over the weekend.

• Sen. Marco Rubio (R-FL):

  They're going to go after them. They're going to go after the people that cannot afford to hire an army of lawyers and accountants to fight off the IRS agents, thousands of IRS agents, but not police officers to go after criminals, IRS agents to go after the American taxpayer. That's who they're going to go after.

  I promise you — and I regret to say it — that a lot of hardworking people are going to be getting letters in the mail, saying, hey, we want to talk to you about your taxes from five years ago, from three years ago, because we think you might have messed up.

• Lisa Desjardins:

  This will mean more audits. Do we know who those audits are likely to hit? How does the IRS approach who it chooses? Hardworking Americans is who Senator Rubio is worried about.

• John Koskinen:

  Yes, Senator Rubio is off-base. It's really a silly argument to say that the IRS is now going to go after hardworking Americans.

  The vast majority of taxpayers never hear from the IRS. They have simple, straightforward returns with W-2s and maybe a 1099 thrown in. And the IRS' goal is not to audit anybody where there is not going to be a change. They keep track of what's called the no-change rate. And the goal is to keep that as minimal as possible, because if there's no change in an audit, not only is it a waste of the taxpayers' time; it's a waste of the IRS' time.

  So what will happen with the information technology modernization and its increased ability to do data analytics is, the IRS will be actually better able to target the people who really should be audited. So I think the vast majority of taxpayers are actually going to benefit by this, because the taxpayer — level of taxpayer service is going to increase significantly.

• Lisa Desjardins:

  Part of this gets to the power of the office which you held, the IRS commissioner.

  The commissioner has said himself, the current commissioner, that they are going to hold that they are going to be responsible for making sure that folks who earn under $400,000 will not see any increase in their audit rate.

  What's to say another commissioner couldn't change that and change and decide who they want to target?

• John Koskinen:

  Well, you have to remember, there are only two political appointees in the IRS, the commissioner and the chief counsel. Everyone else is a dedicated career employee.

  And I have a lot of confidence in them. And no one wants to waste time chasing taxpayers who don't hold owe money than they have already paid, so that I think it's fair to say that the vast majority of people earning under $400,000 already file appropriate income taxes and never hear from the IRS.

  Those who are cheating are going to be a little more nervous. I have always said that, when you underfund the IRS, it's really a tax cut for tax cheats, because they're the ones who benefit by the lowered rate of enforcements and lower audit rates.

  So the IRS with this funding is going to be able to be more focused on the people who are actually noncompliant. So, the hardworking Americans who are filing appropriate tax returns aren't going to hear any more from the IRS in the future than they have heard in the past.

• Lisa Desjardins:

  Democrats are counting on this idea of expanded IRS enforcement to bring in hundreds of billions of dollars. Do you think there is that much money out there in tax cheats that the IRS can get at now?

• John Koskinen:

  When I was there, looking at the audits that were selected to be done that couldn't be done because we didn't have enough people, my estimate was we were leaving $8 to $10 billion a year on the table. That wasn't guessing. That wasn't saying, let's go find some people.

  Those were people who had returns that had serious questions in them, and we just didn't have enough revenue agents and officers. So I think the revenue projected to be raised by this bill is reasonable. And I think it's probably going to be exceeded over the course of the eight years.

• Lisa Desjardins:

  John Koskinen, thank you so much for talking with us.

• John Koskinen:

  My pleasure.