Brandon Arnold is Executive Vice President of the National Taxpayers Union, a nonprofit, nonpartisan public policy organization based in Washington, DC. This transcript has been edited for length and clarity.
Federal Newswire: How is politics an exercise in psychology?
Arnold: I actually started as a psych major and then I started taking a few political science courses and got really interested in political science. The more I thought about it, it was very similar.
Why do people have the views that they do? Where did these ideological preferences they're willing to fight and die for come from? Are those part of our psychology, or are they part of just how we're raised? There's just a fascinating line of research there that really got me interested.
Federal Newswire: What does the National Taxpayers Union do?
Arnold: We are the taxpayers’ advocate. There are special interest groups all across Washington, DC and the surrounding community here. There's a group of lobbyists that advocates for the interest of lobbyists, believe it or not. We recognize that there aren't really many folks that are advocating on behalf of taxpayers.
This means your interactions with the Internal Revenue Service, [and] the overall burden of taxes, but also all of the associated issues that impact taxpayers in a very profound way. What about health care programs, energy programs, technology, telecommunications? Yet there isn't a lot of representation on the behalf of the average taxpayer in Washington, DC or in state governments as well. We have a presence all across the country.
Federal Newswire: Why was IRS Commissioner Danny Werfel in front of Congress recently?
Arnold: The House Appropriations Committee [and the] Senate Appropriations committee are the committees that write the checks. They're the ones that spend money. So, of course, agency heads want to appear before these committees to ask for more of your money. That was why Werfel was before the House Appropriations subcommittee.
Earlier this week, he was asking for a boost to the IRS budget to the tune of about $100 billion, over the next ten years. To be fair, the IRS budget is about $13 billion, generally speaking. Typically the IRS has been funded through discretionary spending, and that means the spending that is subject to the annual appropriations process, the money that Congress evaluates each and every year.
We had a $60 billion increase to the IRS budget, spread over ten years. They've already burnt through a tremendous amount of that. The one area where I think they did actually need resources was business systems modernization, and with improving the taxpayer service– making sure that people got their phone calls responded to [and] their emails responded to when they had questions.
They burned through these resources so quickly, funds that were supposed to take ten years to be exhausted. The IRS says they're going to run out of money in 2026. They need a desperate infusion of cash. Meanwhile, they're out creating this direct file program, this new IRS program, [and] they're out there wanting to increase their enforcement activity. I think an ounce of prevention is better than a pound of cure here.
If you improve your system so you commit fewer errors and you're less prone to making mistakes, guess what? The need for enforcement activities is reduced.
I would much rather fix these problems in advance, trying to improve the way that people interact with the IRS, rather than trying to punish them after the fact and crack skulls and go after people's hard earned money after the fact. We've seen far too many abuses taking place at the IRS, so many instances of mistreatment of taxpayers, and we'd really like to minimize increasing their enforcement budget [which] is going to only make that problem worse, not better.
Federal Newswire: What about the people who do their own taxes or don’t have lawyers to represent them when they have problems with the IRS?
Arnold: A lot of times what happens is the IRS will do these automated systems where they'll see discrepancies between what they think you're supposed to pay and what you've actually submitted to the IRS on April 15th. They'll just send off these automated notifications. “Oh, we think you owe $300 more than what you sent, or $1,000 more than what you sent.”
If you're that middle class taxpayer, you could fight that and challenge the IRS. You might win. But for so many people, they don't have the time. They don't have the resources, they don't have the energy, and they're frankly a little intimidated. A lot of times it's easier for people to just write those checks for $200-300.
Whereas, if you're going after those wealthy taxpayers, if you're going after those big corporations, they will fight. They will push back with their teams of attorneys. So why do they end up auditing the middle class? It's the same reason. Why do you rob banks? Because that's where the money is. You're going to get money out of these people.
We're seeing very high audit rates. There's racial disparity. Black people are being audited more often than white people. A lot of times that's taking place in these low income programs like the earned income tax credit, [or] the child tax credit, particularly the refundable portion.
Lower income Americans who have very little ability to fight back with these, they're dealing with very complicated tax credits here. There's all sorts of questions about custodial children and the complexity of the programs. There are more mistakes on those tax returns than there might be on an upper class income tax return, who have the resources to hire a CPA or to use more sophisticated tax software. These people are getting audited at a higher clip. There's higher fraud rates. There's also just higher rates of mistakes and errors that are made on these tax forms.
Federal Newswire: What’s the problem with the Direct File and Free File IRS programs?
Arnold: Free File has been in place for many years now. That's a public private partnership. Basically, if you meet a certain income threshold, it's around $70,000 a year, you can use private software to file your taxes for free…There's a bunch of different private software companies that you can choose to do your taxes as long as you're eligible for Free File.
Now, the IRS just created this new thing called Direct File. They created their own taxpayer service, I think, in an illegal fashion. They cited language that was passed in a pandemic bill that said, “we're going to give you $15 million to study the feasibility and assess the cost of creating a program like this”, [but] they didn't specifically authorize the creation.
The IRS didn't fully assess the cost of it as they were instructed to by law. They did create the program, which they were not instructed to. So now you have this program that's out there in a number of test markets. They only rolled it out in a handful of states initially. We already have Free File. There's no need to create Direct File.
Federal Newswire: What are your concerns about the Direct File?
Arnold: There are huge privacy concerns. The IRS has a horrible track record when it comes to protecting privacy. You're submitting a lot more data here than you might otherwise be providing to the IRS. But more fundamentally, I think the problem is putting the fox in charge of the henhouse. Absolutely everything the IRS has talked about with regard to the need for more money has been less about improving taxpayer experience, and more about squeezing more money out of taxpayers.
They're using IRS funding to say, “if you give us this $80 billion we’ll generate hundreds of billions of dollars in unpaid taxes because we can squeeze more money out of taxpayers.” That's what they're saying, and that's why they're attacking Republicans who are cutting the IRS budget, saying, “oh, if we do that, then we're going to lose revenue ultimately.”
Then you're creating this program that is supposed to fairly treat taxpayers and fairly assess how much they owe. You just said all you want to do is squeeze every last nickel out of taxpayers. I don't think people should evade taxes or anything like that, but I think they should absolutely minimize their tax burden in a legal fashion, and all indications suggest this tax software could be pointing in the opposite direction.
Federal Newswire: What is the report that NTU is working on relating to Social Security and Medicare?
Arnold: This is a report from the trustees of Social Security and Medicare, large entitlement programs. I wish I had positive news. There are a few elements that are of positive here because the economy has been stronger than anticipated. We see slight improvements in the dates that these trust funds are going to be depleted, but nine years from now, the Social Security Trust Fund is going to be depleted. At that point, we're going to have to have immediate cuts to benefits… unless we take action to fix it. Medicare finances are only slightly better. Medicare Part A, which is the in-patient portion of the program, is going to expire in 12 years.
The cuts there are about 11% to the benefits paid to senior citizens relying on these programs. These are in desperate need of reform. We can reform these programs without dismantling them, but we need to have some degree of political courage in order to do so. Right now, that is very much lacking on Capitol Hill.
Federal Newswire: Some tax cuts are going to expire soon, so will a lot of taxpayers see tax increases?
Arnold: Absolutely. Our friends at the Tax Foundation have done some phenomenal work assessing how big a tax increase people would face in the event that we allow the tax cuts and jobs to expire. It's scheduled to expire at the end of next year or the end of 2025.
There are certain portions that were made permanent, but you look at things like tax rates, the expanded child tax credit, the expanded standard deduction, all of these things that help average families reduce their tax burden are going to expire.
[For example], if you see a family of five—three kids, two parents— making $200,000 a year, it's a very solid income. Their taxes are going to go up by $7,500. That's a huge tax increase. But somebody, a little bit down the income ladder, somebody making $60,000 a year, a single worker, their taxes are going to go up well over $1,000.
We're seeing credit card debt skyrocket. We're over $1 trillion in collective credit card debt. I just don't think Americans are really ready to shoulder thousands of dollars in additional taxes.
If you're taking the standard deduction, the Tax Cuts and Jobs Act effectively doubled the standard deduction from about $12,000 to $24,000 and indexed it to inflation, which has become far more important over the past few years than perhaps it was in 2017. If your tax liability is below that point, you're looking at dramatic change [to] your taxes.
