Leigh Osofsky (North Carolina; Google Scholar), Estimating the Return on Investment in the IRS (JOTWELL) (reviewing Natasha Sarin (Yale; Google Scholar; Former Counselor on Tax Policy, U.S. Treasury Department) & Mark Mazur (Former Assistant Secretary for Tax Policy, U.S. Treasury Department), The Inflation Reduction Act's Impact on Tax Compliance—and Fiscal Sustainability (2023):
In the Inflation Reduction Act, Congress made a monumental investment in the IRS, reversing a decades-long trend of inadequate funding. A critical question is: how much was this investment worth? Government scorekeepers came up with a number of about $200 billion (yielding a $120 billion net amount, after taking into account the cost of the increased funding). But, in a new paper, The Inflation Reduction Act’s Impact on Tax Compliance—and Fiscal Sustainability, Natasha Sarin and Mark Mazur argue that these official estimates significantly understate the return on investment in the IRS. They estimate that the funding would enable the IRS to raise at least $560 billion ($480 billion, net) over the next ten years, and that, depending on taxpayers’ behavioral response, it is possible the return may actually be closer to $1 trillion.
Sarin and Mazur’s analysis is compelling for a number of reasons. Sarin and Mazur are highly qualified experts, with a blend of extensive government, as well as academic, and other, experience, including recent stints in the Treasury Department in the Biden Administration, during formulation of the Inflation Reduction Act. Their analysis reflects this deep well of experience and training, in that it draws on government data as well as academic work regarding compliance. The result is a particularly nuanced picture of how the Inflation Reduction Act funding will affect the IRS and its collection capacity. Their conclusion – that the return on IRS funding could be approximately $500 billion in the first decade and $1 trillion in the ten years thereafter – is an important one; so is their description of all the particular ways that the IRS will improve, and why this improvement is an essential part of good governance. ...
This type of analysis will continue to be critical in the coming years. The IRS’s new source of funding is far from secure. Indeed, a significant portion of it was already carved back by the debt ceiling negotiations. This, alone, means that the IRS is unlikely to be able to produce the extent of returns that Sarin and Mazur predicted. Moreover, the IRS’s operations will continue to depend on annual appropriations amounts. If Congress reduces these amounts, gains made by the IRS from the Inflation Reduction Act funding will soon be lost. Sarin and Mazur’s excellent analysis, here, and elsewhere, will be a critical part of the inevitable, continuing discussions about IRS funding in the coming years. Tax scholars, commentators, and policymakers would be well-advised to pay attention to their findings and approach.