IRS Return on Investment and the Need for Modernization

House Ways and Means Subcommittee on Oversight

2025-02-11

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Summary

This meeting of the Ways and Means Oversight Committee focused on the modernization of the Internal Revenue Service (IRS), the impact and effectiveness of the Inflation Reduction Act (IRA) funding, and critical issues surrounding taxpayer data privacy and security[ 00:20:55-00:21:03 ] . Speakers presented diverse perspectives on the IRS's current capabilities, the accuracy of budgetary projections, and the potential risks to confidential taxpayer information[ 00:30:38 ]

Themes

IRS Modernization and Technology Needs

There was broad agreement on the urgent need for the IRS to modernize its outdated systems and adopt advanced technologies[ 00:50:52 ]

. Ms. Olson highlighted that the IRS operates with over 60 different case management systems, leading to significant inefficiencies and hindering a comprehensive view of taxpayer data. Mr. Ladwa, drawing on international experience, advocated for leveraging commercially available, scalable IT solutions, artificial intelligence (AI), and automation to enhance efficiency, compliance, and taxpayer engagement, suggesting that such modernization could transform the IRS into a global benchmark[ 00:40:56 ] . Concerns were raised about the slow pace of modernization, with the IRS reportedly still using 1960s technology like fax machines, which increases data vulnerability[ 01:51:53 ] .

Impact of Inflation Reduction Act Funding

Speakers presented contrasting views on the effectiveness of the IRA's significant funding for the IRS[ 00:21:09 ] . Ms. Sewell praised the IRA as a "once-in-a-generation investment" that led to "record-breaking" results, including the collection of $1 billion from high-wealth taxpayers and dramatically improved taxpayer services like increased call answering rates[ 00:24:24 ]

. Conversely, Mr. Dublois and Mr. Sepp argued that the Congressional Budget Office (CBO) drastically overestimated the revenue generation from IRA enforcement efforts[ 00:31:14 ] . They pointed out that actual collections were far below projections, with more money spent on hiring new agents than collected in revenue, resulting in a negative return on investment for enforcement efforts[ 00:31:27 ] . The National Taxpayers Union (NTU) gave the IRS a "D grade" for its use of IRA funds for modernization, suggesting the funding was aimed at meeting budget scores rather than true transformation[ 00:38:38 ] . There was also criticism of the IRS's direct file pilot program, which cost $129 million without clear congressional approval and was seen as a misuse of funds that could have gone to other priorities.

Taxpayer Data Privacy and Security

A significant portion of the discussion revolved around the Department of Government Efficiency (DOGE), led by Elon Musk and established by President Trump, and its alleged access to the Treasury's Bureau of Fiscal Service payment systems. Democratic members expressed profound concerns about this access, viewing it as an "egregious invasion of privacy" and a potential violation of federal law, particularly Section 6103, which protects confidential taxpayer information. They cited a federal judge's order blocking DOGE's access and demanding the return of documents. Republicans, however, defended DOGE, stating there was "no evidence" of illegal access or disclosure and framed it as necessary oversight to audit government spending[ 01:27:27 ]

. Ms. Olson underscored the critical importance of taxpayer confidentiality for maintaining trust and voluntary compliance within the tax system, warning that unauthorized access could severely erode this trust.

CBO Accuracy and Bias

Mr. Dublois critically assessed the CBO's track record for consistently inaccurate fiscal and economic projections[ 00:30:32 ]

. He argued that the CBO tends to underestimate the costs of expanding government programs and overestimate the costs of tax relief[ 00:33:35 ] . Citing examples such as the IRA, the Affordable Care Act, and the 2009 stimulus bill, he highlighted instances where actual costs significantly diverged from initial CBO estimates[ 00:30:52 ] . Mr. Dublois suggested that these consistent errors indicate an "implicit bias" within the CBO and recommended that Congress scrutinize CBO scores more closely and consider amending laws for more realistic baseline construction[ 00:33:35 ] .

Tone of the Meeting

The tone of the meeting was notably contentious and polarized, largely due to deep partisan divisions, especially concerning the role of DOGE and the use of IRA funds. There was frustration expressed by members from both parties regarding the IRS's outdated technology, perceived inefficiencies, and poor customer service[ 00:50:52 ]

. Despite the political tension, the witnesses maintained a largely informative and expert demeanor, providing technical details and historical context on IRS operations, data security, and budget analysis[ 00:30:27-00:34:43 ] . Many speakers articulated concern about taxpayer privacy and the potential for misuse of sensitive financial information.