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Inflation Reduction Act set to grant the IRS $80 billion in funding

Senior columnist Rick Newman highlights how the IRS may make use of its boosted budget from Inflation Reduction Act funding.

Video Transcript

SEANA SMITH: Moments ago, President Biden signing the Inflation Reduction Act into law. It provides an additional $80 billion in funding to the Internal Revenue Service, the IRS. Do taxpayers need to start worrying about the tax man? Yahoo Finance senior columnist Rick Newman joins us now. Rick, what do you think? For the average viewer out there, what does this mean for them?

RICK NEWMAN: Do you cheat on your taxes? If you cheat on your taxes, they may not be coming after you for a couple of years. But the whole purpose of adding this new $80 billion in funding over a decade is to ramp up enforcement at the IRS, which has really been hollowed out. Their budget is 20% lower than it was in 2010. Audit rates are way down. They're especially down for the wealthiest people who file and for big corporations. And when we talk about the tax gap, that's the amount of money that people owe, people in businesses owe to the government, but the government does not collect for a variety of reasons.

It's mostly among businesses and the wealthy. And that tax gap is somewhere between $250 billion and $1 trillion per year. That's per year that people owe the government that they end up not paying because the IRS either can't find it or doesn't have the resources to go after it. So if one of those people who's hiding a few million bucks in a shell company or an offshore account, yeah, I guess you should be a little bit worried. All the rest of us, I don't think so.

DAVE BRIGGS: Well, that's not what Kevin McCarthy wants you to think. Because he tweeted this. Democrats in Washington plan to hire an army of 87,000 IRS agents so they can audit more Americans like you, Rick. What do you make of that suggestion?

RICK NEWMAN: I'm not slightly worried about this. And there are these claims out there they're making all the conservative websites, and people are hearing about this. So look. The IRS, if it wanted to, it could be really stupid and use new resources to go after waiters who make a lot of their income in cash, or people who make mistakes when they claim the earned tax credit.

DAVE BRIGGS: Hair stylists.

RICK NEWMAN: If they want everybody to hate them even more than they already do, sure. The IRS could do that. Number one, that's not where the money is. They're not going to get any meaningful increase in new tax revenue by going after middle and lower income people. And Janet Yellen has said, we are-- that is not what we're doing. These new resources are supposed to go after the high end people who are evading taxes. And just to break down that 87,000, I've had people asking me, is it true the IRS is hiring 87,000 new auditors? That sounds like a lot.

OK, this is over a decade. The IRS says it will probably hire about 87,000 people. But it's going to have 50,000 people retiring. So 50,000 of those new jobs will be just to replace people who are retiring to keep staffing where it is so that you get into a much smaller number of actual new hires, or new personnel. And they're not all going to be auditors. I mean, the IRS is a large agency. A lot of them will be technology people.

The IRS has computers from the 1960s. They have equipment that is made by companies that are out of business. So there's nobody to service this stuff. They have computers running on Windows XP. No one has that in their house anymore. So they desperately need some new technology, people to build that technology. And it's going to take a long time. I mean, we're talking about investment over a decade. And we're probably not going to see a real increase in tax revenue or an improvement in enforcement until the latter part of that time period.

So not much is going to change for the next couple of years.

SEANA SMITH: But Rick, it is a huge win for the Democrats. We know that this has been a priority, also more broadly speaking, the Inflation Reduction Act that the president just signed into law is huge because it's something that he campaigned on. Is this something that you think voters are going to care so much about? Does it really move the needle at all?

RICK NEWMAN: If inflation were 2% or 3% right now, I think voters would be looking this and saying, hey, the guy is getting stuff done. But I think what voters are still primarily focused on is food prices that are up 13% year over year, we've seen gasoline prices come back below $4.00. But they're still $3.95. I mean, that's up from-- that's up almost a dollar from where they were a year ago. So the thing Biden needs the most to get credit for these legislative wins he's getting, and he's racking some up, as you and I were discussing--

DAVE BRIGGS: It's remarkable.

RICK NEWMAN: Right before the segment. I mean, he's really get-- his record suddenly is pretty good with the CHIPS+ Act, this, the Infrastructure Act from last year--

DAVE BRIGGS: And guns legislation, which has never been done. I mean, it's minor, but the W's are adding up.

RICK NEWMAN: Yeah, so it is still inflation the thing that they said in Bill Clinton's campaign in the early '90s. It's the economy is stupid. Still true.

DAVE BRIGGS: None of this you feel, and IRA, you won't feel either. And ultimately, that's why he's still in the 40s. Rick, good to see you. Thank you.

RICK NEWMAN: Thanks, guys.