It’s no secret that the Internal Revenue Service (IRS) has faced significant underfunding over the years. The agency, already weighed down by a growing list of responsibilities, has also faced cuts that have hamstrung its ability to perform audits. While the cutbacks may be cause for celebration among some quarters, the data shows that these cuts predominantly benefit wealthy taxpayers.

New research from the National Bureau of Economic Research (NBER), titled “A Welfare Analysis of Tax Audits Across the Income Distribution,“ finds that each additional dollar spent auditing taxpayers above the 90th income percentile (which is $152,000 in taxable income after accounting for deductions) yields a staggering $12 in revenue. This is not new revenue but comes from the “tax gap” – the estimated $500 billion in tax obligations that go unpaid each year.

The findings go on to quantify the costs associated with each audit. While it is true that audits of high-income taxpayers are costlier to perform, the revenue generated from these audits more than offsets the costs. To put it bluntly, when you adjust for economies of scale, audits of high-income individuals not only pay for themselves but are revenue generators. The NBER paper notes that audits of those in the 99-99.9th percentile ($548,336 to $2,614,565) generate a 3.2:1 return, and for the ultra-wealthy in the top 0.1% (over $2,614,565) the return is a staggering 6.3:1.

Additionally, the study highlights that the deterrence effect of an initial audit produces at least three times more revenue than the audit itself. These deterrence effects are consistent across income groups. This results in a 12:1 return for audits of taxpayers above the 90th percentile, making the audit not only a one-time revenue source but a long-term investment in ensuring the wealthiest pay the taxes they legally owe. Moreover, the NBER study concludes that audits raise revenue while inconveniencing relatively few (high income) individuals, making them a sensible and cost-effective method for generating income compared to other revenue-raising policies like increased tax rates for all taxpayers.

We have always maintained a clear stance: If the objective is to lower taxes for the wealthiest, then the appropriate course of action is to change the tax laws through the legislative process, not to hobble the agency whose job it is to enforce those laws. This is not just a matter of fiscal responsibility; it’s a matter of legislative integrity and respect for the rule of law.

There has been a lot of political hay being made of “jackbooted” IRS agents being sent to kick in doors as justification for cutting funds for the IRS. In reality, underfunding the IRS does not make for a fairer tax system; rather, it creates an undue burden on average taxpayers. When the IRS lacks the resources to offer comprehensive guidance or efficiently process returns, it’s the average taxpayer who suffers through longer wait times, less assistance, and a greater likelihood of errors.