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Business

Inflation Reduction Act will cost middle class $20B in new taxes: CBO

By
Lydia Moynihan
Published Aug. 15, 2022
Updated Aug. 15, 2022, 2:07 p.m. ET


The Inflation Reduction Act sent to President Biden’s desk will end up forcing working-class Americans to pay billions of dollars in new taxes, according to the nonpartisan Congressional Budget Office.

An analysis by the CBO estimates those earning less than $400,000 — the group on which Biden promised not to raise taxes — will pay an estimated $20 billion more in taxes over the next decade as a result of the Democrat-pushed $740 billion package, which also sets aside $80 billion to hire 87,000 IRS agents.

The bill has yet to be scored in its entirety by the CBO — which typically gives each piece of legislation a price tag before it is voted on — but the agency scored the impact of the IRS expansion on middle-class taxpayers on Aug. 12 after a provision from Sen. Mike Crapo (R-Idaho) sought to exempt those making under $400,000 from increased IRS scrutiny.

Crapo’s proposed amendment would have kept those taxpayers from being targeted by the new IRS hires, but his provision was shot down 51-50 in the bill passed by the Senate last week.

On Friday, the House approved the bill. Biden is expected to sign it in the coming days.

mike crapo
Sen. Crapo’s amendment would’ve kept middle-class taxpayers from being put in the IRS’s crosshairs. Michael Brochstein/SOPA Images/S

The CBO analysis confirms an earlier report from the Joint Committee on Taxation that found that throwing an extra $80 billion at the IRS to improve the agency’s collection of under-reported income will end up targeting small business owners to pay for the legislation.

The IRS is expected to bring in more than $180 billion from other, wealthier taxpayers.

Small business owners will find themselves in the crosshairs of the new wave of IRS auditors, tax experts said.

“Most small businesses are organized as pass-through entities — LLCs and S Corps,” James Lucier, managing director of Washington-based policy research firm Capital Alpha, told The Post. “Proponents of increased auditing specifically say they want to target pass-through entities, which inherently means targeting small business and small business owners.”

“The IRS will have to target small and medium businesses because they won’t fight back,” adds Joe Hinchman, executive vice president at National Taxpayers Union Foundation. “We’ve seen this play out before … the IRS says ‘We’re going after the rich’ but when you’re trying to raise that much money, the rich can only get you so far.” 

The White House has dismissed claims the bill will hurt lower- and middle-income Americans, instead noting estimates don’t take into account how much the bill will offset costs for average Americans like prescription drugs.

But Treasury Secretary Janet Yellen has acknowledged the new and improved IRS could ramp up collections from middle-class taxpayers. In a letter to the IRS commissioner last week, Yellen directed “any additional resources … shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.”

IRS
The IRS will collect billions more from middle-class Americans. Getty Images

In other words, Yellen conceded that middle-class taxpayers will face more audits and pay more taxes — but that they won’t be unfairly targeted.

“Anytime you get an IRS letter, it could take months or years to get it settled — we’re talking many thousands of dollars to address,” Daniel Bunn, executive vice president at the Tax Foundation, told The Post. “Large companies have constant reviews and lawyers going through everything … small business doesn’t have the resources to fight back in the same way.”