Family and Small Business Taxpayer Protection Act

Floor Speech

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Mr. SMITH of Nebraska. Mr. Speaker, pursuant to House Resolution 5, I call up the bill (H.R. 23) to rescind certain balances made available to the Internal Revenue Service, and ask for its immediate consideration.

The Clerk read the title of the bill.

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Mr. SMITH of Nebraska.

Mr. Speaker, the process for considering our first bill of the 118th Congress reflects our commitment to Americans and an open legislative process.

Congresswoman Michelle Steel and I first introduced this bill in September. Members were given more than 72 hours' notice prior to today's consideration.

Mr. Speaker, 72 hours is more than enough time for Members to review this bill. In fact, it is two pages long and covers only one topic.

If Members wish to vote on this bill, they must be present in the House Chamber because proxy voting is no longer an option.

Now let's focus on what this bill does--it repeals the vast majority of the Internal Revenue Service funding Democrats enacted last year in order to pay for their Green New Deal.

The primary purpose of that funding is hiring more auditors and support staff to vastly expand IRS's audit capacity. And not just audits on wealthy Americans. With that expanded capacity, IRS can bring in more revenue by auditing more middle- and lower-income families and more small businesses.

Families and small businesses are struggling under the weight of record inflation and supply chain shortages. Small businesses are struggling to find workers at any wage.

The overwhelming majority of Americans, about 85 percent, follow the law and pay their taxes. The last thing they need is more IRS agents knocking on doors to conduct audits.

Yet, this IRS funding is part of the broad Biden administration strategy to tax and audit exponentially more Americans by looking into their bank accounts, requiring online payment services to report them when they split a dinner check with friends or pay their babysitter after a night out, and then target them using 87,000 new IRS employees.

Americans deserve to know their government is working for them, not against them.

Today, Mr. Speaker, you are going to hear Democrats claim there really won't be 87,000 new IRS employees. I imagine that they will say that new employees aren't going to target middle-class families and small businesses, and that Republicans don't care about IRS's customer service failings.

Let's focus on the facts. When a Federal agency hires a new employee to replace one who retires, it does not increase the agency's head count. Yet, the Biden administration's own documents say they are increasing the head count by 87,000 over the next decade with these funds.

Secretary Yellen's own instructions to IRS stated audit rates of families earning less than $400,000 should continue to be audited at historically similar rates. Under those instructions, 9 out of every 10 new audits can target families earning less than $400,000.

And because Republicans are committed to delivering a government that is accountable, this bill retains funding for customer service and IT modernization at IRS--despite the fact these accounts would be more appropriately addressed through regular appropriations--to ensure IRS has the resources to make much-needed improvement to taxpayer services.

Mr. Speaker, there are numerous reasons to support this bill. It protects families and small businesses. It ensures agencies are funded appropriately. Most importantly, it stops autopilot funding for an out- of-control agency that is perhaps most in need of reform. IRS needs to fix its customer service and return processing problems, not focus on auditing families and small businesses.

Americans want an IRS that works for them, not against them.

This bill is a great first step in that direction, and I reserve the balance of my time.

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Mr. SMITH of Nebraska. Mr. Speaker, I include in the Record an excerpt from a 2021 Biden administration proposal called ``The American Families Plan Tax Compliance Agenda'' that asks for $80 billion in IRS funding and clearly shows a plan for 86,852 new hires. [From the U.S. Department of the Treasury, May 2021] The American Families Plan Tax Compliance Agenda Restoring IRS Resources

The first step in the President's efforts to restore IRS enforcement capability is a sustained, multi-year commitment to rebuilding the IRS. This involves spending nearly $80 billion on IRS priorities over the course of the decade including hiring new specialized enforcement staff, modernizing antiquated information technology, and investing in meaningful taxpayer service--including the implementation of the newly expanded credits aimed at providing support to American families. Importantly, the additional resources will go toward enforcement against those with the highest incomes, and audit rates will not rise relative to recent years for those earning less than $400,000 in actual income.

The President's proposal includes two components: a dedicated stream of mandatory funds ($72.5 billion over a decade) and a program integrity allocation ($6.7 billion over a decade). These mechanisms provide for a sustained, multi- year commitment to revitalizing the IRS that will give the agency the certainty it needs to rebuild.

The IRS proposal includes year-by-year estimates of the additional resources that will be directed toward the agency as well as the specific activities that these resources would support. The design ensures that the IRS is able to absorb and usefully deploy additional resources over the entire 10- year horizon and keeps budget growth manageable at around 10 percent per year.
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Mr. SMITH of Nebraska. Mr. Speaker, I include in the Record a Republican Ways and Means Committee release that explains the Congressional Budget Office's determination that it expects over $20 billion in revenue to come from the increased audits on taxpayers--that means families and small businesses making less than $400,000. [From waysandmeans.house.gov, August 12, 2022] CBO: New IRS Audits Will Grab at Least $20B from Lower- & Middle-Income Families

Key Point: 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. That's in addition to existing audits of these income levels.

Explanation: Last weekend, all 50 Senate Democrats voted against an amendment offered by Senate Finance Republican Leader Mike Crapo (R-ID) that would have protected lower- and middle-income American taxpayers against new audits by the IRS.

The Congressional Budget Office (CBO) confirms that had this amendment passed and lower- and middle-income taxpayers been protected, revenue in Democrats' bill would have been reduced by at least $20 billion--confirming that at least $20 billion of the $124 billion in new revenue expected by a supercharged IRS will be coming from higher audits on low- and middle-income Americans. This will be in addition to existing audits on these income levels.

From CBO:

``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.''

Additional Background:

Lower- and middle-income earning Americans are the primary target in Democrats' bill:

A previous Congressional Budget Office analysis makes clear that under this plan, audit rates will ``rise for all taxayers'' and the policy ``would return audit rates to the levels of about 10 years ago.''

The Joint Committee on Taxation, Congress's official tax scorekeeper, says that from 78 percent to 90 percent of the money raised from under-reported income would likely come from those making less than $200,000 a year. Nearly half of the audits would hit Americans making $75,000 per year or less and only 4 percent to 9 percent would come from those making more than $500,000.

Democrats voted against guardrails preventing audits for middle-income earners, instead using non-binding legislative language that would do nothing to protect taxpayers from agency abuse.

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Mr. SMITH of Nebraska. Van Duyne).

Ms. VAN DUYNE. Mr. Speaker, I rise today in full support of H.R. 23 which rescinds the additional funding for the already inflated IRS. I think we can all agree that the last thing Americans need right now is a government who is actively working against them.

One of the most outrageous provisions in the Democrats' so-called Inflation Reduction Act was giving the IRS 72 billion taxpayer dollars to hire 87,000 additional agents whose job would be to stalk transactions of everyday Americans and attack small businesses.

Middle-class Americans and the small businesses that fuel our economy have been unable to catch a break over the last 2 years. That ends today. There is simply no reasonable rationale to make the IRS larger than the Pentagon, State Department, FBI, and Border Control together.

If we are adding an additional 87,000 agents, why don't we send them to the southern border to help our border agents who are already overwhelmed and understaffed?

I stand with my colleagues today in support of H.R. 23 to block the intrusive and unnecessary 87,000 new IRS agents. Americans deserve a government that will work for them, and stopping this funding is a first step in the right direction.
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Mr. SMITH of Nebraska. Mr. Speaker, I include in the Record a Republican Ways and Means Committee release explaining that Senate Democrats voted down an amendment that would prevent increased audits on taxpayers making less than $400,000 a year and House Democrats refuse to take up a bill that would do the same. [From waysandmeans.house.gov, Aug. 17, 2022] Democrats Fail To Protect Middle Class From IRS Audits

Democrats voted against guardrails that would have protected lower- and middle-income taxpayers from more audits as a result of supercharging the IRS with 87,000 new agents.

Instead, they hope you'll just ``take their word for it'' that the IRS won't target American families who are living paycheck to paycheck. Various news outlets have circulated these claims as facts, but the bill text says otherwise, Reason Magazine's Matt Welch reports.

Democrats claim they won't target lower- and middle- income earners with their expansion of the IRS by 87,000 agents . . .

``. . . top Democrats have been busy escalating their already implausible claims that goosing the IRS enforcement budget by 69 percent over a decade, hiring 87,000 additional new staffers at an agency that currently employs 79,000, and nabbing an estimated extra $124 billion in tax revenue will miraculously not bring any percentage increase in audits performed on Americans earning less than $400,000 a year.''

. . . but the nonpartisan Congressional Budget Office predicts boosted IRS funding will increase audits for all taxpayers . . .

``CBO Director Phillip L. Swagel estimated that boosting IRS funding by $80 billion would increase tax revenues by $200 billion (the number would later rise to $207 billion, before settling at $204 billion), adding that `the proposal . . . would return audit rates to the levels of about 10 years ago; the rate would rise for all taxpayers' (italics mine), though `higher-income taxpayers would face the largest increase.' ''

. . . and Democrats voted against Republican amendments preventing lower income earners from being targeted by higher audits.

``In the final IRA bill, in fact, $45.7 billion is earmarked for `enforcement,' and $25.3 billion goes to `operations support.' There is no reason to conclude from those dollar amounts that the number of resulting audits will be less than originally projected.''

Many ``fact checkers'' have refused to verify claims by Democrats:

``As Liz Wolfe has reported repeatedly in the pages of Reason, none of these assurances live in the text of the Inflation Reduction Act (IRA) itself. One Republican amendment ``to prevent the use of additional Internal Revenue Service Funds from being used for audits of taxpayers with taxable incomes below $400,000'' was voted down on party lines. You'll just have to take Democrats' word for it. ``That's good enough for many news organizations, who have been coughing up ``fact-checks'' aimed not at the demonstrable veracity of White House promises about significant legislation impacting literally all adult Americans but at the hyperbole of Republican criticism thereof.''

Democrats will raise audits on the middle class under the guise of going after the tax gap.

``The fact remains that you can't close the tax gap without greater enforcement on the poor and that enforcement on the poor is considerably less expensive.''

``It is true that Yellen has freshly directed the IRS to not increase the audit rate of under-$400,000s. And it's also true that there's no structural enforcement mechanism preventing the agency from continuing to go after low-hanging fruit to meet revenue targets.''

Only $3.2 billion of the $80 billion total goes towards improving services for taxpayers.

``. . . just $3.2 billion of the $80 billion is earmarked for customer service, producing a mere 9 percent increase over the previous baseline. If the agency is bad at answering phone calls--and it's bad at answering phone calls--a 9 percent bump seems inadequate to the task.''

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Mr. SMITH of Nebraska. Mr. Speaker, very briefly, I point out that the Biden administration is not giving us all the information. Secretary Yellen said that the IRS will not raise audit rates for taxpayers making less than $400,000 ``relative to historic levels.'' What does ``historic levels'' really mean?

I include in the Record a CBO blog post from 2021 examining the Biden administration's $80 billion proposal and stating that it would ``return audit rates to the levels of about 10 years ago'' and that ``the rate would rise for all taxpayers.'' [From the CBO Blog, Sept. 2, 2021] The Effects of Increased Funding for the IRS (By Phill Swagel)

Last month, the Congressional Budget Office published An Analysis of Certain Proposals in the President's 2022 Budget. Since then, CBO has completed its analysis of another proposal in the President's budget, an increase in spending for the Internal Revenue Service's (IRS's) enforcement activities. CBO estimates that portions of the Administration's proposal to increase funding for the IRS by $80 billion over the 2022-2031 period would increase revenues by approximately $200 billion over those 10 years. That estimate does not include changes in revenues resulting from portions of the proposal that involve new information- reporting requirements and other changes to the tax code; those changes are estimated by the staff of the Joint Committee on Taxation (JCT). the proposal

The Administration proposes funding for the IRS that is $80 billion greater over 10 years than the amounts in CBO's July 2021 baseline projections (which reflect the assumption that current laws generally do not change). Two types of funding would be provided: discretionary appropriations, which would mainly be used for enforcement activities; and mandatory funding, which would be used for a variety of activities (not only enforcement but also operations support, business- systems modernization, and taxpayer services).

Spending would increase in each year between 2021 and 2031, though the highest growth would occur in the first few years. By 2031, CBO projects, the proposal would make the IRS's budget more than 90 percent larger than it is in CBO's July 2021 baseline projections and would more than double the IRS's staffing. Of the $80 billion, CBO estimates, about $60 billion would be for enforcement and related operations support.

The Administration also proposes that financial institutions increase their reporting about account inflows and outflows. Part of the increased funding would support the implementation of a new information-reporting system to be used by those institutions. The resulting effects on revenues are estimated by JCT and are not included in CBO's estimate of an approximately $200 billion increase. how cbo estimates the effect on revenues of increased irs funding

CBO's estimate of revenues is based on the IRS's projected returns on investment (ROIs) for spending on new enforcement initiatives. The IRS estimates those ROIs by calculating the expected revenues that would be raised from taxes, interest, and penalties as a result of the new initiatives and dividing them by their additional cost. (The agency has provided ROIs over the past five years as part of its budget justification.) The IRS's ROIs ramp up over three years as staff become trained and fully productive, arrive at the peak level, and then stay there. In recent years, peak ROIs have ranged from 5 to 9. That is, a $1 increase in spending on the IRS's enforcement activities results in $5 to $9 of increased revenues.

CBO adjusts the ROIs so that they better reflect the marginal return on additional spending. First, CBO expects the IRS to prioritize the enforcement activities that it thinks will have the highest average return; additional enforcement spending would therefore have lower returns than previous spending. Second, CBO expects taxpayers to adapt to the IRS's enforcement activities and adopt new ways of evading detection, so an enforcement activity may have a lower return in later years. Finally, the productivity of the IRS's enforcement activities will also depend on the IRS's other capabilities. For example, modernized information technology that stored all of a taxpayer's information in digital form could increase the productivity of examiners (the employees who detect taxpayers' noncompliance).

CBO's estimate of revenues also accounts for the timing of collections resulting from enforcement activity by new hires. Taxes are assessed at the end of an audit; if taxpayers disagree with the assessment, they can appeal and continue to litigate. The length of each step depends on the complexity of the case. CBO estimates that an audit of medium complexity would take 24 months to complete. That time, combined with the expected training time for an experienced new hire, suggests that the IRS would begin to collect revenues 30 months after the new hire joined the agency. (The timing would be longer when cases were more complex or when the taxpayer did not agree to the assessment and appealed.) what is incorporated into cbo's estimate

CBO's estimate of the change in revenues is relative to the amount of revenues collected under current law (which is reflected in CBO's baseline budget projections). Under guidelines agreed to by the legislative and executive branches, this change in revenues typically would not be included in a cost estimate for legislation that brought about the change, but it would be reflected in CBO's baseline budget projections once the legislation was enacted. CBO's estimate reflects the assumption that the proposed increase in funding would follow the proposed expansion of information reporting. Expanded information reporting might allow the IRS to better target potentially noncompliant taxpayers; it might also prompt taxpayers to file more accurate tax returns. It might have a positive effect on revenues collected, but it might also reduce the ROIs from enforcement activities, because if returns are more accurate, there will be less noncompliance to audit. In CBO's and JCT's judgment, those effects roughly offset each other, on net, resulting in a small positive effect on ROIs.

CBO's estimate includes ``direct revenues'' and ``protected revenues.'' Direct revenues are generated from the IRS's auditing and collection efforts. Protected revenues result when the IRS prevents a taxpayer from recouping previously assessed and paid taxes--for example, when the IRS prevents fraudulent refunds or disallows claims in taxpayers' amended returns.

The estimate reflects CBO's expectation that the increased enforcement activities would change the voluntary compliance rate--that is, the share of taxes owed that are paid voluntarily and on time--only modestly. The magnitude of that effect is highly uncertain, however, and the empirical evidence about the effects of audits on taxpayers' behavior is inconclusive. Research about such deterrence finds varying responses, depending on the type of taxpayer. People generally increase their reported income in the years following an audit, but people with higher income generally do not, and neither do corporations. (For more discussion, see Box 1 in CBO's July 2020 report Trends in the Internal Revenue Service's Funding and Enforcement.) how the current analysis differs from previous analyses

In that July 2020 report, CBO estimated that a $40 billion increase in enforcement funding would raise $103 billion (for a net effect of $63 billion). The methods used for this estimate differ in several ways from the methods used for that one.

First, CBO used updated ROIs that incorporated the IRS's most recent estimates of the return on enforcement activities. CBO then adjusted the ROIs to reflect both direct revenues and protected revenues, increasing the peak ROI from 6.4 to 7.1.

Second, CBO's current methods allow for positive interaction between enforcement spending and other IRS funding. That is, CBO accounts for ways in which increased capabilities, such as more digitization of taxpayers' information and greater visibility of income flows, can increase the productivity of enforcement activities.

Third, this analysis reflects a longer time frame for receiving enforcement revenues because of the complexity of audits associated with high-wealth individuals, large corporations, and partnerships. Taxpayers with greater resources may be more likely to appeal assessments or to litigate their disputes in the U.S. Tax Court, delaying the receipt of assessed taxes. As a result, revenues from some audits will not be received until later than CBO estimated in its July 2020 analysis. sources of uncertainty

The change in revenues resulting from an increase in the IRS's funding could be different from CBO's estimate. It depends on the IRS's ability to hire experienced candidates, changes in voluntary compliance, and the interaction of enforcement funding with the IRS's other capabilities.

The IRS intends to hire mid- and senior-level people with private-sector experience who will not require a great deal of training to become productive. But it might not be able to hire its desired mix of candidates. If it hired less experienced candidates, it would have to spend more resources training them. Not only would they take longer to become productive, but current staff members would have to devote more time to training them. A related source of uncertainty in CBO's estimate is attrition: If it proved higher than expected, personnel would have fewer years at full productivity.

An increase in the IRS's funding could signal that the agency was more capable of detecting noncompliance, thus increasing voluntary compliance and revenues. However, if there were fewer noncompliant taxpayers to audit, the ROIs from the IRS's enforcement activities would drop, and the direct revenues from increased enforcement would be lower than CBO estimated.

Finally, it is unclear how much the greater information reporting or the increased IRS spending in areas other than enforcement (such as technology) could improve examiners' productivity. Greater nonenforcement spending might increase overall revenues but decrease ROIs--for example, if improved services for taxpayers enabled those taxpayers to more accurately determine their tax liability, reducing the pool of noncompliant taxpayers to audit. effects on taxpayers

The proposed increase in spending on the IRS's enforcement activities would result in higher audit rates than those underlying CBO's baseline budget projections. Between 2010 and 2018, the audit rate for higher-income taxpayers fell, while the audit rate for lower-income taxpayers remained fairly stable. In CBO's baseline projections, the overall audit rate declines, resulting in lower audit rates for both higher-income and lower-income taxpayers. The proposal, by contrast, would return audit rates to the levels of about 10 years ago; the rate would rise for all taxpayers, but higher- income taxpayers would face the largest increase. In addition, the Administration's policies would focus additional IRS resources on enforcement activity aimed at high-wealth taxpayers, large corporations, and partnerships. CBO estimates that if the proposals were enacted, tax compliance would be improved, and more households would meet their obligation under the law.

Higher audit rates would probably also result in some audits of taxpayers who would later be determined not to owe additional taxes. However, the Administration's proposal for more information reporting, as well as additional spending on IRS technology, might reduce the burden on compliant taxpayers by allowing the IRS to better target noncompliant ones and to reduce the number of audits that resulted in no change in tax assessment.

Mrs. MILLER of West Virginia. Mr. Speaker, I rise in support of the Family and Small Business Taxpayer Protection Act.

The last 2 years under Democrat rule have resulted in terrible policies and more unnecessary taxes for the American people. Americans have been feeling the weight of destructive policies since their first day in power, and now it is time for our Republican majority to fix this mess.

The pressure on American taxpayers has continued to increase since the passage of the so-called Inflation Reduction Act when they gave $80 billion of new funding for the IRS to hire the 87,000 new agents to needlessly audit families and small businesses that are forced to fund the out-of-control spending and misguided Green New Deal priorities.

How do more audits and scrutiny from the IRS benefit hardworking Americans? Liberals in Congress chose to target American taxpayers by supercharging the IRS, which solely focuses on auditing the hardworking Americans who already pay more than their fair share. This is unacceptable and must be reversed.

Through the Inflation Reduction Act, Democrats used the tools of the IRS as a means to increase reckless spending.

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Mr. SMITH of Nebraska. Tenney).

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Mr. SMITH of Nebraska. Mr. Speaker, may I inquire how much time is remaining?

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Mr. SMITH of Nebraska. Mr. Speaker, I include in the record a CBO post from 2021 examining the Biden administration's $80 billion proposal and stating that ``CBO projects the proposal would make the IRS' budget more than 90 percent larger than it is in CBO's July 2021 baseline projections and would more than double the IRS' staffing.'' [From CBO Blog, Sept. 2, 2021] The Effects of Increased Funding for the IRS (By Phil Swagel)

Last month, the Congressional Budget Office published An Analysis of Certain Proposals in the President's 2022 Budget. Since then, CBO has completed its analysis of another proposal in the President's budget, an increase in spending for the Internal Revenue Service's (IRS's) enforcement activities. CBO estimates that portions of the Administration's proposal to increase funding for the IRS by $80 billion over the 2022-2031 period would increase revenues by approximately $200 billion over those 10 years. That estimate does not include changes in revenues resulting from portions of the proposal that involve new information- reporting requirements and other changes to the tax code; those changes are estimated by the staff of the Joint Committee on Taxation (JCT). The Proposal

The Administration proposes funding for the IRS that is $80 billion greater over 10 years than the amounts in CBO's July 2021 baseline projections (which reflect the assumption that current laws generally do not change). Two types of funding would be provided: discretionary appropriations, which would mainly be used for enforcement activities; and mandatory funding, which would be used for a variety of activities (not only enforcement but also operations support, business- systems modernization, and taxpayer services).

Spending would increase in each year between 2021 and 2031, though the highest growth would occur in the first few years. By 2031, CBO projects, the proposal would make the IRS's budget more than 90 percent larger than it is in CBO's July 2021 baseline projections and would more than double the IRS's staffing. Of the $80 billion, CBO estimates, about $60 billion would be for enforcement and related operations support.

The Administration also proposes that financial institutions increase their reporting about account inflows and outflows. Part of the increased funding would support the implementation of a new information-reporting system to be used by those institutions. The resulting effects on revenues are estimated by JCT and are not included in CBO's estimate of an approximately $200 billion increase. How CBO Estimates the Effect on Revenues of Increased IRS Funding

CBO's estimate of revenues is based on the IRS's projected returns on investment (ROls) for spending on new enforcement initiatives. The IRS estimates those ROls by calculating the expected revenues that would be raised from taxes, interest, and penalties as a result of the new initiatives and dividing them by their additional cost. (The agency has provided ROls over the past five years as part of its budget justification.) The IRS's ROls ramp up over three years as staff become trained and fully productive, arrive at the peak level, and then stay there. In recent years, peak ROls have ranged from 5 to 9. That is, a $1 increase in spending on the IRS's enforcement activities results in $5 to $9 of increased revenues.

CBO adjusts the ROls so that they better reflect the marginal return on additional spending. First, CBO expects the IRS to prioritize the enforcement activities that it thinks will have the highest average return; additional enforcement spending would therefore have lower returns than previous spending. Second, CBO expects taxpayers to adapt to the IRS's enforcement activities and adopt new ways of evading detection, so an enforcement activity may have a lower return in later years. Finally, the productivity of the IRS's enforcement activities will also depend on the IRS's other capabilities. For example, modernized information technology that stored all of a taxpayer's information in digital form could increase the productivity of examiners (the employees who detect taxpayers' noncompliance).

CBO's estimate of revenues also accounts for the timing of collections resulting from enforcement activity by new hires. Taxes are assessed at the end of an audit; if taxpayers disagree with the assessment, they can appeal and continue to litigate. The length of each step depends on the complexity of the case. CBO estimates that an audit of medium complexity would take 24 months to complete. That time, combined with the expected training time for an experienced new hire, suggests that the IRS would begin to collect revenues 30 months after the new hire joined the agency. (The timing would be longer when cases were more complex or when the taxpayer did not agree to the assessment and appealed.)

What Is Incorporated Into CBO's Estimate. CBO's estimate of the change in revenues is relative to the amount of revenues collected under current law (which is reflected in CBO's baseline budget projections). Under guidelines agreed to by the legislative and executive branches, this change in revenues typically would not be included in a cost estimate for legislation that brought about the change, but it would be reflected in CBO's baseline budget projections once the legislation was enacted.

CBO's estimate reflects the assumption that the proposed increase in funding would follow the proposed expansion of information reporting. Expanded information reporting might allow the IRS to better target potentially noncompliant taxpayers; it might also prompt taxpayers to file more accurate tax returns. It might have a positive effect on revenues collected, but it might also reduce the ROIs from enforcement activities, because if returns are more accurate, there will be less noncompliance to audit. In CBO's and JCT's judgment, those effects roughly offset each other, on net, resulting in a small positive effect on ROIs.

CBO's estimate includes ``direct revenues'' and ``protected revenues.'' Direct revenues are generated from the IRS's auditing and collection efforts. Protected revenues result when the IRS prevents a taxpayer from recouping previously assessed and paid taxes- for example, when the IRS prevents fraudulent refunds or disallows claims in taxpayers' amended returns.

The estimate reflects CBO's expectation that the increased enforcement activities would change the voluntary compliance rate--that is, the share of taxes owed that are paid voluntarily and on time-only modestly. The magnitude of that effect is highly uncertain, however, and the empirical evidence about the effects of audits on taxpayers' behavior is inconclusive. Research about such deterrence finds varying responses, depending on the type of taxpayer. People generally increase their reported income in the years following an audit, but people with higher income generally do not, and neither do corporations. (For more discussion, see Box 1 in CBO's July 2020 report Trends in the Internal Revenue Service's Funding and Enforcement.)

How the Current Analysis Differs From Previous Analyses. In that July 2020 report, CBO estimated that a $40 billion increase in enforcement funding would raise $103 billion (for a net effect of $63 billion). The methods used for this estimate differ in several ways from the methods used for that one.

First, CBO used updated ROIs that incorporated the IRS's most recent estimates of the return on enforcement activities. CBO then adjusted the ROIs to reflect both direct revenues and protected revenues, increasing the peak ROI from 6.4 to 7.1.

Second, CBO's current methods allow for positive interaction between enforcement spending and other IRS funding. That is, CBO accounts for ways in which increased capabilities, such as more digitization of taxpayers' information and greater visibility of income flows, can increase the productivity of enforcement activities.

Third, this analysis reflects a longer time frame for receiving enforcement revenues because of the complexity of audits associated with high-wealth individuals, large corporations, and partnerships. Taxpayers with greater resources may be more likely to appeal assessments or to litigate their disputes in the U.S. Tax Court, delaying the receipt of assessed taxes. As a result, revenues from some audits will not be received until later than CBO estimated in its July 2020 analysis.

Sources of Uncertainty. The change in revenues resulting from an increase in the IRS's funding could be different from CBO's estimate. It depends on the IRS's ability to hire experienced candidates, changes in voluntary compliance, and the interaction of enforcement funding with the IRS's other capabilities.

The IRS intends to hire mid- and senior-level people with private sector experience who will not require a great deal of training to become productive. But it might not be able to hire its desired mix of candidates. If it hired less experienced candidates, it would have to spend more resources training them. Not only would they take longer to become productive, but current staff members would have to devote more time to training them. A related source of uncertainty in CBO's estimate is attrition: If it proved higher than expected, personnel would have fewer years at full productivity.

An increase in the IRS's funding could signal that the agency was more capable of detecting noncompliance, thus increasing voluntary compliance and revenues. However, if there were fewer noncompliant taxpayers to audit, the ROIs from the IRS's enforcement activities would drop, and the direct revenues from increased enforcement would be lower than CBO estimated.

Finally, it is unclear how much the greater information reporting or the increased IRS spending in areas other than enforcement (such as technology) could improve examiners' productivity. Greater nonenforcement spending might increase overall revenues but decrease ROIs--for example, if improved services for taxpayers enabled those taxpayers to more accurately determine their tax liability, reducing the pool of noncompliant taxpayers to audit. Effects on Taxpayers

The proposed increase in spending on the IRS's enforcement activities would result in higher audit rates than those underlying CBO's baseline budget projections. Between 2010 and 2018, the audit rate for higher-income taxpayers fell, while the audit rate for lower-income taxpayers remained fairly stable. In CBO's baseline projections, the overall audit rate declines, resulting in lower audit rates for both higher-income and lower-income taxpayers. The proposal, by contrast, would return audit rates to the levels of about 10 years ago; the rate would rise for all taxpayers, but higher- income taxpayers would face the largest increase. In addition, the Administration's policies would focus additional IRS resources on enforcement activity aimed at high-wealth taxpayers, large corporations, and partnerships. CBO estimates that if the proposals were enacted, tax compliance would be improved, and more households would meet their obligation under the law.

Higher audit rates would probably also result in some audits of taxpayers who would later be determined not to owe additional taxes. However, the Administration's proposal for more information reporting, as well as additional spending on IRS technology, might reduce the burden on compliant taxpayers by allowing the IRS to better target noncom pliant ones and to reduce the number of audits that resulted in no change in tax assessment.

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Mr. SMITH of Nebraska. Malliotakis).

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Mr. SMITH of Nebraska. De La Cruz).

Ms. DE LA CRUZ. Mr. Speaker, I am proud to stand here today as a single mother and a small business owner in support of the Family and Small Business Taxpayer Protection Act.

One of the most outrageous provisions in the Democrats' hyperpartisan Inflation Reduction Act was giving the IRS $72 billion to hire an additional 87,000 agents. Look, the hiring of 87,000 new IRS agents only squeezes American taxpayers, including small business owners like myself, the backbone of our communities.

My colleagues on the other side, let me tell you this: I live and work and now represent a border district that houses a Border Patrol sector. They need feet on the ground. They have the same number of agents on the ground as compared to 3 years ago. Why aren't you fighting that hard for these agents?

The Biden administration will tell you that they have increased agents, but they have only increased agents in the processing and administration, which ultimately has led to the mental health deterioration.

The American people deserve a government that works for them, not against them.

Mr. Speaker, I rise with concern about some of these points that have been raised. I think we have heard it from both sides that the IRS is not answering the phone like they should, to actually serve the taxpayers, taxpayers who want to do the right thing.

It is conceivable that there would be taxpayers overpaying as well because of the complexity in the tax code, and yet the record shows over the years that there have been innocent taxpayers, taxpayers who already paid what they owed, who were still audited and were considered guilty until they proved themselves innocent. To me, that is a huge problem.

We just heard that there is concern about the debt, and yet the answer is just more government employees, in fact, more than double of what the current number of employees are. I have huge concerns about that, and that is why I think we need to vote for this bill, get the President and the Senate to agree to this, and work together to focus on customer service issues that everyone knows are a concern at the IRS.

I hope that, again, this use of technology can really lead the way with a goal of customer service, rather than just hiring more full-time equivalent employees. I don't think that will actually result in the efficiencies that some are claiming would supposedly raise the revenue that it would.

I just think we need to adopt this bill, get this passed, and come together after that, realizing that we can and should expect the IRS to do better.

Mr. Speaker, I appreciate the conversation that we have had here. I think there is fundamental disagreement on what the real solutions need to be; although, I think there is agreement that the current customer service at the IRS is significantly underperforming.

Now, in 2019, in a bipartisan fashion, we passed the Taxpayer First Act. In fact, our highly respected colleague, the late Representative John Lewis, led the way on that, as well. This was about customer service and reform at the IRS. Were there benefits from that? COVID got in the way.

I think that does actually beg the question of what have been the impacts of COVID on customer service at the IRS.

Mr. Speaker, I am concerned that when there are resources afforded the IRS, they are just not used the way they can and should be, especially as it relates to customer service and the honest taxpayers that my colleague from Massachusetts references. We want to do everything we can when the American people are doing the right thing, for the right reasons, and abiding by the law. Yet they would still be exposed to having to prove themselves again after they already did with voluntary tax compliance. But here comes an audit. I vividly recall the fact that in the 1990s, the IRS, as an agency, overstepped.

In fact, I believe it was President Clinton that even pulled back the IRS somewhat because they were going after law-abiding, taxpaying Americans who already did everything they were supposed to do.

That certainly establishes my concern about why we would see legislation passed last year that would pretty randomly put forward funding that I think will ultimately get in the way of these taxpaying Americans who, like I said, already did everything they were supposed to do, but yet they have to incur the expense.

Mr. Speaker, I urge the passage of this bill for good public policy, and I yield back the balance of my time.

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