Sen. Mike Crapo on September 8, 2022
Make no mistake: the mislabeled “Inflation Reduction Act of 2022,” which experts say does nothing to curb inflation, will result in higher taxes, more spending, higher prices, and an army of Internal Revenue Service (IRS) agents. This last outcome is particularly bad news for small businesses that are already struggling with the lackluster Biden economy.
The bill provides a staggering $80 billion to the IRS. Of this, nearly 60%, $45.6 billion, is for enforcement to collect Democrats’ desired $180 billion or more of revenue to fund wishful “green new deal” policies.
Democratic colleagues, the Biden administration and the IRS promised they will not increase audits on people making less than $400,000. My position is, let’s make that promise into a law. When I offered an amendment to create a binding statute that increased funds could not be used to escalate and intensify audits on those making less than $400,000, every Democratic senator voted “No.”
Democrats know increased audits for the middle class, small businesses and those making less than $400,000 are inevitable under their legislation.
The nonpartisan Congressional Budget Office confirmed when my amendment was proposed that “at least” tens of billions of the projected revenue coming from increased enforcement will come from those making less than $400,000 per year. Moreover, according to data from the IRS and the nonpartisan Joint Committee on Taxation, between 78 and 90% of estimated underreported individual income is associated with taxpayers making less than $200,000 per year.
Income earned by small business owners — so-called “Schedule C” income — is the largest single input here. Small businesses are clearly a target of increased IRS enforcement.
Many such businesses will have done nothing wrong. It is a myth the IRS “always gets it right.”
IRS statistics show that over the past 20 years, courts have sustained its assessments less than half the time. Even taxpayers who have made mistakes may have only done so because of tax code complexity or return preparer error, as a nonpartisan Government Accountability Office study showed. Honest businesses will not be spared scrutiny.
When faced with challenging the IRS, many small businesses cannot afford the time and great expense to fight. Unfortunately, many will fold and absorb the cost, which they can ill afford.
According to National Federation of Independent Business surveys, the impact of inflation on small businesses is the worst it has been since 1979. Expectations for improving small business conditions near 50-year lows. And, according to Automatic Data Processing Inc., businesses of between 1 and 19 employees continue to shed jobs, with net losses of 47,000 workers in August alone.
In contrast to their enforcement funding bonanza, Democrats set aside just a sliver of the bloated IRS funding–under four percent–to serve taxpayers. In 2021, just over one in ten callers could reach the IRS by telephone. More than 250 million calls went unanswered. Meanwhile, it took the IRS 251 days on average to respond to taxpayer correspondence.
My Democratic colleagues circumvented regular order and slipped through with the narrowest possible margin a partisan boondoggle that includes an unbridled, supersized IRS, unvetted tax policies, and ineffective spending policies and price controls.
Americans and particularly small businesses should be very concerned, and brace for more audits, investigations and tax enforcement on taxpayers of all income levels.
I will be introducing my amendment as a standalone bill to prevent the IRS from using any of the $80 billion of funding for audits on hard-working American taxpayers, individuals and small businesses with taxable incomes below $400,000. The bill puts legislative teeth into an otherwise non-binding statement of intent, or toothless and unenforceable edict from the Treasury Secretary.
Taxpayers deserve better.
Mike Crapo is Idaho’s senior United States senator.
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