Republican super PACs are using an outdated Congressional Budget Office estimate to falsely claim in TV ads that Democrats voted to raise taxes by $20 billion on “lower- and middle-income families.”
The ads concern a provision in the Inflation Reduction Act that provides the IRS with $79.6 billion over 10 years to improve technology, customer service and enforcement efforts to collect unpaid taxes.
In fact, Treasury Secretary Janet L. Yellen directed IRS Commissioner Charles P. Rettig on Aug. 10 not to use the new funding “to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.”
The $20 billion figure cited in the ads was a preliminary estimate generated before Yellen gave her directive. CBO has since issued a revised estimate that says those earning less than $400,000 will only pay “a small fraction” of the increased tax revenues that are expected as a result of enhanced IRS enforcement.
Nevertheless, Republican super PACS are running TV ads this month against Democrats in competitive Senate races to claim the IRS will “extract” $20 billion from those earning less than $400,000.
GOP Ads Cite CBO ‘Preliminary Estimate’
The Senate Leadership Fund, which is affiliated with Senate Republican Leader Mitch McConnell, cites the $20 billion figure in two similar 30-second TV ads against Rep. Tim Ryan of Ohio, who is running for Senate against author JD Vance to replace retiring Republican Sen. Rob Portman. The ads, according to Kantar Media, started running Sept. 6 and Sept. 20.
The latest 30-second ad against Ryan features an Ohioan identified only as “Bruce” who says his family is “already strapped” and laments that Ryan is “putting the burden of payment for all his reckless Washington spending on hard-working, middle-class families like mine, with 20 billion in higher taxes.”
The latest ad does not cite a source for the $20 billion figure, but the super PAC’s earlier ad against Ryan from Sept. 6 cited a New York Post article from Aug. 15 that said the CBO analysis of the IRS provision in the Inflation Reduction Act “estimates those earning less than $400,000 — the group on which Biden promised not to raise taxes — will pay an estimated $20 billion more in taxes over the next decade.”
Jack Pandol, a spokesman for the Senate Leadership Fund, told us that the new ad also relies on the CBO estimate from mid-August that was the subject of the New York Post article.
Our American Century, another Republican super PAC, also cites the $20 billion figure in a series of TV ads this month against Democrats running in competitive Senate races in Ohio, Washington, Colorado, Nevada, Arizona and Georgia, according to Kantar Media. All the ads have virtually the same script, which says the Democratic candidate voted “to hire IRS agents to extract $20 billion from people who make less than 400 grand,” citing the CBO as its source.
The Our American Century ads further mislead voters by going on to say: “Much of that money will come from cracking down on people who get paid with cash, tips or phone apps. If you do real work waiting tables, serving drinks, driving Ubers or other jobs, Biden and Ryan’s new IRS agents may knock on your door soon.”
Ad-makers like to use big, round figures in political ads, but the $20 billion figure isn’t accurate, and neither is the claim that the IRS will now go after servers and Uber drivers or “middle-class” households like Bruce’s family. Let’s look at where the figure came from and why it is obsolete.
Origin of the $20 Billion Figure
The Inflation Reduction Act, which Biden signed into law on Aug. 16, invests about $391 billion over 10 years in energy and climate change incentives, including tax credits for purchasing new and used electric vehicles, and $108 billion in health care, mostly to extend subsides for health insurance policies on the Affordable Care Act exchanges, according to the Committee for a Responsible Federal Budget.
Of the $79.6 billion for the IRS, about $46 billion will go for enforcement, according to the nonpartisan Congressional Research Service.
During the debate on the bill, Sen. Mike Crapo introduced an amendment that said none of the IRS funding in the bill “may be used to audit taxpayers with taxable incomes below $400,000.” That amendment failed, with all Democratic senators voting against it on Aug. 7.
Democratic Sen. Ron Wyden, chairman of the Senate Finance Committee, said the amendment was unnecessary and counterproductive. He claimed the phrase “taxable incomes” would have shielded “billionaires” from paying their fair share of taxes.
The amendment “applies — and I quote here — ‘to taxpayers with taxable income.’ And as Americans have learned recently, billionaires often have little or no taxable income for years on end,” Wyden said on the day of the vote. “So under this amendment, the billionaires who live off their borrowings would be immune from audit, and that would invite further tax avoidance.”
The bill passed the same day along party lines, with Vice President Kamala Harris casting the tie-breaking vote.
Pandol, the Senate Leadership Fund spokesman, said Ryan voted for the Inflation Reduction Act knowing “it would raise taxes, and CBO confirmed that with their $20 billion score. He could have withheld his vote to wait for more information, but chose not to.” However, Ryan did have some more information in the form of an Aug. 4 letter that the IRS commissioner sent to senators.
“These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans,” Rettig wrote. “As we’ve been planning, our investment of these enforcement resources is designed around the Department of the Treasury’s directive that audit rates will not rise relative to recent years for households making under $400,000.”
Four days after the bill passed, the Republican staff of the House Ways and Means Committee posted an item on its website that said: “At least $20 billion of the revenue Democrats hope to collect from taxpayers with a supercharged IRS would come from lower- and middle-income earners and small businesses, according to a new analysis by the nonpartisan congressional scorekeeper.”
First, that’s not what CBO said. Its exact wording — which was also on the committee staff’s website — was less clear. It said: “CBO has not completed a point estimate of this amendment but the preliminary assessment indicates that amendment 5404 would reduce the ‘non-scorable’ revenues resulting from the provisions of section 10301 by at least $20 billion over the FY2022-FY2031 period.”
When we asked about the $20 billion estimate, the CBO communication office emailed us a copy of what it said it had sent to the Senate Budget Committee. It was just five sentences and did not provide an income distributional analysis, which would have shown how much of the $20 billion would have come, in the language of the ad, from “lower- and middle-income earners.” (Middle-income households earned up to about $85,000 in 2020, according to the Census Bureau data on the Tax Policy Center website. But the CBO estimate did not say how much of the $20 billion would come from taxpayers at or below $85,000.)
Regardless, it was just a “preliminary assessment,” as the CBO told the Senate committee.
Revised CBO Estimate
On Aug. 25, CBO produced a revised estimate that took into account the Treasury secretary’s directive.
In a letter to the ranking Republicans on the House Budget Committee and the House Ways and Means Committee, CBO Director Phillip Swagel said the increased IRS funding in the Inflation Reduction Act would raise an additional $180.4 billion over 10 years. But only “a small fraction” of that would come from taxpayers earning less than $400,000, Swagel said.
Importantly, Swagel said, “the Secretary’s directive will cause many of the effects that would have occurred under” Crapo’s amendment.
CBO originally projected that the bill — when it was in draft form — would generate $203.7 billion in additional revenues over 10 years. But there were two changes that reduced projected tax revenues by about $23 billion over 10 years, including Yellen’s directive to the IRS, the CBO letter said.
In addition, the final bill “removed expedited hiring authority for the newly funded positions and the ability for the IRS to pay certain employees higher rates than those in the normal government salary structure,” Swagel said.
“By CBO’s estimates, the interaction between the two changes will reduce revenues more than either change would individually, because personnel flexibility would have aided the IRS in hiring the type of highly specialized employees needed to target noncompliance by large corporations, complex partnerships, and individuals with complicated tax returns,” Swagel said.
If Crapo’s failed amendment became part of the final bill, Swagel said total revenues would have been about $176 billion over 10 years, or about $4 billion less than CBO now projects. He said Crapo’s amendment “would have caused the agency to shift to less productive enforcement activities and to incur increased administrative costs.” It also would have increased “underreporting of income” for those earning less than $400,000.
Swagel said that CBO expects the Inflation Reduction Act will increase tax revenues from those earning less than $400,000 for several reasons. (That’s not the same as “higher taxes,” as the ad claims. These are tax revenues that are already due to the federal government under existing tax laws.)
CBO expects audit rates would return to “roughly historical amounts,” and “activities other than audits,” such as “automated screening and document matching,” are not affected by Yellen’s directive to the IRS, Swagel said. CBO also expects “voluntary compliance will increase for all taxpayers,” he added.
But Swagel could not provide a precise estimate for how much additional revenue would be generated from taxpayers earning less than $400,000, saying only that it would be a “small fraction” of the total.
“That fraction will be small because, CBO expects, the IRS will follow the Secretary’s directive, and enforcement resources will focus on what the Secretary terms high-end noncompliance,” Swagel said.
Pandol, of the Senate Leadership Fund, called the Treasurer’s directive to the IRS “a vague, politically-motivated directive to cover Democrats’ tracks, but it doesn’t change the fact the bill still raises billions in new revenue from earners under $400,000.” But that’s not how the CBO saw it. Swagel specifically said the CBO reduced its revenue estimate by about $23 billion over 10 years, in part because it expects the IRS will follow Yellen’s order and that her order would have largely the same effect as Crapo’s amendment.
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