WASHINGTON, D.C. — A recently unveiled analysis by the U.S. Department of the Treasury and the Internal Revenue Service (IRS) offers an insightful take on the potential of IRS modernization. As stipulated in the Inflation Reduction Act (IRA), the planned revamping could translate into a substantial surge in revenues. The study estimates a potential yield of a staggering $561 billion addition in revenue from 2024 to 2034. This figure could catapult to $851 billion, should the Administration opt for the renewal of the IRA funding.
Why Modernize the IRS?
Prior estimates hinged primarily on revenues generated from direct enforcement activities steered by the increase in staffing. This recent study, however, brings to light the wider array of benefits that could be realized through the enhancement of technology, data analytics, and customer service. Such improvements could potentially drive up compliance, streamline the audit selection and collection planning process, and boost overall productivity.
The study’s findings also underscore the vital role of IT modernization in revenue generation. It leans on the encouraging outcomes from the modernization of California’s tax administration infrastructure, projecting similar potential at the federal level.
Pondering the Implications
This fresh analysis signals far-reaching implications for the future of IRS funding and tax revenue collection. Should the IRA funding be sustained and extended beyond its current expiration, the IRS could recover an estimated added revenue of $851 billion over the forthcoming decade. These funds could be channeled towards critical governmental programs and services, debt reduction efforts and stimulating economic growth.
Conversely, any rollbacks in IRA resources or trimming down the IRS base funding could potentially cut down revenue collections and hinder strides made in improving taxpayer services and enforcement operations. The IRA investments were targeted to counter the dip in audit rates for millionaires and large corporations, in addition to bridging the growing tax gap.
Looking Ahead
The study undertaken by the U.S. Department of the Treasury and the IRS elucidates the prospects of a substantial return on investment in IRS modernization. The results assert that the investments could potentially generate billions of additional revenue over the next decade. Sustaining and expanding the IRA funding remains pivotal in sustaining the momentum in tax revenue collection, bettering taxpayer services, and ultimately, narrowing down the tax gap.
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