President Joe Biden’s pick to lead the Internal Revenue Service was grilled by lawmakers Wednesday over how he intends to oversee the use of $80 billion in new funding coming to the agency over the next decade.
Daniel Werfel, a former acting IRS commissioner, testified before the Senate Committee on Finance Wednesday morning. The full Senate, which is controlled narrowly by Democrats, is expected to later approve his nomination.
But first, Werfel faced hard questions about how he will use the new money to revitalize the struggling tax agency and which taxpayers may face increased audit rates.
Werfel committed to upholding Treasury Secretary Janet Yellen’s prior directive that the IRS will not use the new funding to increase audit rates, relative to historic levels, for households making less than $400,000 a year.
“If I am fortunate enough to be confirmed, the audit and compliance priorities will be focused on enhancing the IRS’ capabilities to ensure that America’s highest earners comply with applicable tax laws,” Werfel said at the hearing.
“If poor people are more likely to be audited than the wealthy, that is something I think potentially degrades public trust and needs to be addressed within the tax system,” he added.
Still, Republican Sen. Mike Crapo of Idaho, the committee’s ranking member, said that he remains “very concerned” about how the funds will be used to increase tax enforcement, noting that Yellen’s directive “leaves a lot of wiggle room.”
“I don’t expect to see wiggle room in this commitment,” he told Werfel.
Democrat’s law gives IRS $80 billion over a decade
Democrats’ sweeping Inflation Reduction Act, which passed along party lines last year, approved $80 billion for the IRS over 10 years, intending to support the agency in cracking down on tax cheats and providing better service to taxpayers. It’s estimated that the agency could boost federal revenue by more than $100 billion over that time period by collecting more in taxes.
Many Republicans have made the IRS and its new funding a political target, claiming that the investment will result in additional audits of hardworking Americans.
After taking control of the House earlier this year, two of the GOP’s first votes on legislation concerned the IRS. One bill calls for rescinding nearly all the new funding for the agency and the other calls for abolishing the IRS altogether. It’s highly unlikely, though, that either bill will become law, given that Democrats still control the Senate.
The Inflation Reduction Act says that the new investment in the IRS is not “intended to increase taxes on any taxpayer or small business with a taxable income below $400,000,” though there is some uncertainty about how exactly the IRS will decide how to ramp up audits.
Some key Republican leaders continue to make the exaggerated claim that the $80 billion in new funding would be used to hire 87,000 auditors who will target hardworking Americans.
But the 87,000 figure is misleading. Many of the new hires will be replacing staff that the IRS has already lost or is expected to lose through attrition in coming years. And while a 2021 Treasury report estimated that the IRS could hire 86,852 full-time employees over the course of a decade with a nearly $80 billion investment, that would account for all workers – not solely enforcement agents.
In fact, the IRS has hired 5,000 new customer service agents since the law passed. And Treasury officials say the new funding is already making a difference.
For the first two weeks of this year’s filing season, live IRS agents answered 89% of customer calls and, when counting those answered with automated assistance, the IRS answered 93% of calls. Those rates are a stark contrast to last year when the IRS was able to answer just 13% of calls.
So far this year, the IRS has processed 29% more returns than it had at the same point last tax filing season.
Werfel has a background, unique interest in government operations
Werfel served as acting IRS commissioner for seven months in 2013 at a particularly hard time for the agency. His predecessor resigned following the revelation that the agency targeted conservative groups seeking tax-exempt status for extra scrutiny.
Prior to his earlier stint at the IRS, Werfel worked for nearly 16 years at the White House’s Office of Management and Budget, serving as deputy controller and then federal controller. After leaving the government, he joined Boston Consulting Group, where he is a managing director and partner on the federal and public sector teams.
Werfel is also the co-host of a podcast called “Gov Actually” about how government works. It aims to put a spotlight on how government operates behind the scenes to implement laws passed by Congress and campaign promises made by politicians.
“What never seems to get any attention is does the government and its workforce and its current tool set actually have the ability to make these campaign promises a reality,” Werfel said on the first episode of the podcast that posted in 2016.
This headline and story have been updated with additional information.