MoneyWatch

As tax season nears, a backlogged IRS faces GOP push to stamp it out

Edited By Anne Marie Lee, Alain Sherter

January 12, 2023 / 5:06 PM EST / MoneyWatch

The IRS is gearing up for another tax season amid a slew of challenges, according to a new report. Most pressing is the need to upgrade its "antiquated" systems and hire more workers to provide better service, a watchdog group within the IRS found. Yet the agency's leadership also faces another test: repelling the latest attacks by Republican lawmakers, some of whom are pushing to abolish it altogether.

For taxpayers, meanwhile, the main issues as ever are likely to be getting their refunds on time and reaching a human being at the IRS when they need help. And that, too, could prove difficult after three years of pandemic-induced delays and glitches, according to National Taxpayer Advocate Erin Collins, who this week released her annual report to Congress.

"During the last three years, we have lived through a period of 'All COVID-19, all the time' in tax administration, just as we have in our personal lives, communities and jobs," she wrote. "These challenges continued to impact taxpayers significantly during 2022 and will carry over into 2023."

"Sunlight" ahead?

But there is some good news as well, Collins said. For one, the IRS will start the current tax season with a smaller backlog than a year ago, although at 10 million unprocessed returns, the agency still has a considerable amount of catching up to do, her report says.

"We have begun to see light at the end of the tunnel," Collins wrote in the report. "I am just not sure how much further we need to travel before we see sunlight."

Some relief may be in sight for taxpayers as the Inflation Reduction Act (IRA) last year directed $80 billion in new funding for the IRS to upgrade its technology and hire more workers, as well as to beef up enforcement against tax cheats. The idea is to improve IRS operations, while also sniffing out new revenue from wealthy taxpayers who skirt tax laws.

In an email, the IRS said it "will be carefully reviewing the annual report to Congress."

It added, "While much work remains, the IRS is poised to deliver a better 2023 tax season for the nation with more services for taxpayers, helped by critically needed new resources provided by the Inflation Reduction Act."

But that funding is now a target of GOP lawmakers, with House Republicans this week voting to rescind $72 billion of the $80 billion allocated to the IRS under the IRA.

On Tuesday, Rep. Earl L. "Buddy" Carter, a Republican from Georgia, introduced the Fair Tax Act, which would eliminate the federal personal and corporate income tax, the estate tax, and the payroll tax — the latter of which funds both Social Security and Medicare. Under his bill, those taxes would be replaced by a national consumption tax of 30% that would apply to all consumer purchases — health care, groceries, homes, gasoline and more.

And because much of the tax code would be eliminated, the bill would also abolish the IRS.

Real issues

To be sure, both bills have little hope of advancing given the Democrats' control of the Senate. But the efforts speak to the long-term political headwinds facing the IRS, which could have greater ramifications for the agency if Republicans later gain control of Congress.

Some Republican lawmakers continue to echo a claim that the $80 billion in new IRS funding would be used "to hire 87,000 new agents to target working families," as Congressman Jason Smith, a Republican from Missouri who this week was selected as chairman of the powerful House Ways and Means Committee, said in a January 9 statement.

Those claims have been dismissed by experts as misleading because much of the IRS' new funding would be tapped to hire customer service agents and tax workers who could help answer questions and speed the agency's handling of returns. New auditors would also be hired, but the Biden administration has said they would mostly focus their scrutiny on people earning $400,000 or more — not middle- or working-class Americans.

In the meantime, the IRS is facing very real problems, although largely internal ones. The issues flagged by the National Taxpayer Advocate touch on the daily headaches currently facing taxpayers, such as delayed refunds, calls to the IRS that go unanswered, and a website that is confusing and difficult to use.

Simplifying the tax code?

One thing Collins and anti-IRS lawmakers appear to agree on is that the nation's tax code is overly complex. Its intricacy is one reason Rep. Carter argues a flat consumption tax would benefit Americans simply by whittling down the tax code. He also argues a flat tax would "encourage growth and innovation."

However, tax experts have long pointed out that sales taxes eat away at the incomes of the poor and working class far more than the rich because lower-income households spend most of their paychecks on goods and services. The wealthy, meanwhile, spend a smaller share of their income, making it easier for them to sock away money in savings and investments.

There could be other hidden costs, according to the left-leaning Institute on Taxation and Economic Policy. For instance, the consumption tax would eliminate the tax credits that many Americans receive when buying health insurance through the Affordable Care Act's marketplaces. They would also face a new tax of 30% on their health insurance premiums, it noted.

Republicans "are gearing up to vote on the so-called Fair Tax Act, which would eliminate the federal income tax and instead make everyone pay a flat 30% sales tax," noted Frank Clemente, executive director of the tax advocacy group Americans for Tax Fairness, told CBS MoneyWatch. "So billionaires will pay the same share of taxes as working families."

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Aimee Picchi

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

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