As Prepared for Delivery
It’s great to be with all of you. And thank you for that introduction.
Before I begin, I’d like to speak about the recent decision by Fitch to downgrade the U.S. credit rating.
Over the past few years, the American economy has seen a historic recovery from the depths of the pandemic downturn. Over 13 million new jobs have been created since January 2021. Our unemployment rate stands at 3.6 percent – near historic lows. Overall annual inflation has declined every month for the past year. And our economy continues to grow. In the longer term, the United States remains the world’s largest, most dynamic, and most innovative economy – with the strongest financial system in the world.
Fitch’s decision is puzzling in light of the economic strength we see in the United States. I strongly disagree with Fitch’s decision, and I believe it is entirely unwarranted. Its flawed assessment is based on outdated data and fails to reflect improvements across a range of indicators, including those related to governance, that we’ve seen over the past two and a half years. Despite the gridlock, we have seen both parties come together to pass legislation to resolve the debt limit, as well as to make historic investments in our infrastructure and American competitiveness.
Fiscal responsibility is a priority for President Biden and me. Earlier this year, the President signed debt limit legislation that included over $1 trillion in deficit reduction. His budget would also improve the fiscal outlook by reducing the deficit by $2.6 trillion over the next 10 years. Today, we are here to speak about an IRS modernization project – launched this time last year – that will reduce our deficit by hundreds of billions of dollars over the next decade by ensuring that the IRS has the resources it needs to enforce against wealthy taxpayers and large corporations that have not paid the taxes they owe.
At the end of the day, Fitch’s decision does not change what all of us already know: that Treasury securities remain the world’s preeminent safe and liquid asset, and that the American economy is fundamentally strong.
Now, let me turn to the reason why we are all here: to speak about the IRS and the transformation that is taking place.
Let me first thank Commissioner Werfel for his leadership of the IRS. Commissioner: just five months into your current tenure, you’ve hit the ground running and made your mark on this institution. I am grateful for the deep management experience and dedication to good government that you bring to this difficult job.
It’s a pleasure to be back with the employees of the IRS. Almost a year ago, I visited the IRS facility in New Carrollton, Maryland. I underscored that, as our nation’s revenue collection agency, the IRS is a foundation of our government and society. The agency collects 96 percent of the revenue that funds the federal government. By extension, it plays an indispensable role in priorities from our national defense to retirement security to the construction and maintenance of our infrastructure. The IRS also serves as one of the few parts of the government that touches nearly every American household. I also stressed then – as I always have – that I would do everything I could to support you as you step up to serve the American people at this critical juncture.
It is remarkable what the employees of the IRS have been able to do. Over the three years of the COVID-19 emergency, our nation lived through multiple variants, the closures of schools and businesses, and disruption of day-to-day activities. Throughout it all, you worked around the clock to collect our nation’s revenues and deliver critical relief to Americans in need. And last year, with the passage of the Inflation Reduction Act, you were called once again to meet the moment. This time, the task was to transform the IRS and create a fairer and more modernized tax administration system that the American people expect and deserve. I know it has not been easy. But I know that this is a transformation that many of you have advocated for so long.
Customer Service Improvements: 2023 Tax Filing Season and Beyond
We have so much progress to report – thanks to your hard work and dedication. Last year, I laid out several goals for the 2023 Filing Season. Let me speak about how we did on each of them.
First, we set a bold goal to drastically transform the level of customer service that taxpayers can expect through the phone. During the 2022 filing season, the IRS averaged a 10-15 percent level of service – meaning that it answered less than 2 of every 10 calls. Our goal for this year’s filing season was to achieve an 85 percent level of service. Because of your hard work, I’m pleased to announce that we exceeded that goal. We reached an 87 percent level of service with live assistance this filing season. That’s more than a five-fold increase. This drastic improvement is thanks to over 5,000 new hires made possible by the Inflation Reduction Act. We answered 3 million more phone calls than in 2022. And we cut wait times from 28 minutes down to 3 minutes. That’s astounding progress that we should all be proud of.
Second, we advanced our commitment to expand in-person assistance and meet taxpayers in the communities where they live. In total, we served 140,000 more taxpayers in person through the end of this filing season than last year’s. We’ve opened or reopened 35 Taxpayer Assistance Centers since the passage of the law. That includes one in Vienna. And it includes ones in Fredericksburg, just an hour south of here, and Charlottesville, two hours southwest of here. There are new or newly reopened assistance centers in dozens of cities and towns from Colorado to Pennsylvania to Mississippi. The IRS has also begun setting up temporary pop-up assistance centers in hard-to-reach areas that may be far from permanent IRS centers. In June, the IRS hosted its first such pop-up event in Paris, Texas. There are plans to do many more across the country.
Third, I announced that we would automate the scanning of millions of paper returns in 2023 – and that millions of taxpayers would be able to receive and respond to notices online. Because of your work, we are doing just that. We’ve made it easier and quicker for Americans to interact with the agency. In the first quarter of this year, the IRS scanned 80 times more paper returns than in the entire year of 2022. Taxpayers were also able to respond online to 10 of the most common tax notices – including those that alert taxpayers to the fact that they may be eligible for certain tax credits that they have not claimed. By the middle of this month, we plan to expand this functionality to an additional 53 notices that are currently received through the mail.
As the National Taxpayer Advocate has said, the difference between this filing season and last year’s has been like “night and day.” The accomplishments I just outlined are just a fraction of what you’ve done. You’ve undertaken heroic efforts to address the pandemic backlog of unprocessed returns. I’m extraordinarily proud that the IRS has fully cleared the backlog of 2022 individual returns that have no errors.
Today, I’m pleased to announce another major milestone for the IRS. It’s one that we are calling “Paperless Processing.” And it marks a significant step in our efforts to digitalize IRS operations. Today, we are announcing that – by the next filing season – taxpayers will be able to digitally submit all correspondence, non-tax forms, and notice responses to the IRS.
Of course, taxpayers will always have the choice to submit documents by paper. For those taxpayers, by Filing Season 2025, the IRS is committing to digitally process 100 percent of tax and information returns that are submitted by paper – as well as half of all paper correspondence, non-tax forms, and notice responses. It will also digitalize historical documents that are currently in storage at the IRS.
In a few moments, Commissioner Werfel will provide more details about this announcement. But let me briefly explain why this is a massive transformation. Despite previous modernization efforts, the IRS has remained, in large part, a paper-based agency. The agency receives about 200 million paper documents a year – many of which still undergo manual processing. It also has decades of historical documents that together cost around $40 million a year to store.
But thanks to the IRA, we are in the process of transforming the IRS into a digital-first agency. This “Paperless Processing” initiative is the key that unlocks other customer service improvements. It will enable taxpayers to see their documents, securely access their data, and save time and money. And it will allow other parts of the IRS to rely on these digital copies to provide faster refunds, reduce errors in tax processing, and deliver a more seamless and responsive customer service experience. And much more. I urge Congress to provide stable and sufficient annual appropriations for the IRS in order to sustain and build on this progress.
In addition to these customer service improvements, we are also making progress on our effort to build a fairer tax system. Without the IRA, our country had faced a tax gap – the gap between the taxes owed and those paid – of an astounding $7 trillion over the next decade. With the IRA, we are shrinking this tax gap through investments that will help us audit wealthy and large corporate taxpayers that have not paid the taxes they owe. As I’ve said, I have directed that IRA resources not be used to increase the audit rate for small businesses and households making under $400,000 a year, relative to historical levels. The focus of our enforcement efforts is on peeling back the structures of large corporations, complex partnerships, and other high-income and high-wealth taxpayers to make sure that they are paying their full bill. We know that this requires investment: it takes up to 50 times as long to review the tax returns of wealthy individuals than to complete simple audits. Corporate audits similarly average hundreds of hours over two to four years. That’s why the IRS is focused on hiring top talent, as well as using data and analytics to pursue smarter enforcement and go after cases most likely to reveal significant tax evasion.
I believe that these improvements are a matter of smart economics. After all, we expect our fair enforcement effort to more than pay for itself – reducing our deficits by hundreds of billions of dollars over the next decade. But I also believe it is a matter of fundamental fairness. It’s essential that when regular taxpayers accurately file their taxes, they know that other Americans are also doing the same. Of course, we are just as committed to helping honest taxpayers get it right in the first place. The IRS is investing in resources that help taxpayers identify and avoid errors before they file their returns – and claim the credits and deductions that they are eligible for. The IRS has also made common-sense changes – like ending most unannounced visits to taxpayers. That reform will enhance safety for taxpayers and IRS employees and bolster confidence in its work.
The dividends on these investments will take time to see. But the IRS has already taken aggressive action over the past few months to crack down on tax evasion. In recent months, the agency has closed about 175 delinquent tax cases for millionaires. That has generated about $38 million in recoveries. The IRS has also continued to intensify its effort to enforce against wealthy individuals who fail to file tax returns at all.
To conclude: in less than a year since the passage of the IRA, we have seen the early results of our investment in the IRS. I believe those results speak for themselves. Today’s announcement – and the other milestones that we’ve already reached – are a testament to what dedicated federal employees can do when they are provided the tools and resources to succeed. I am grateful to everyone at the IRS for their extraordinary dedication to public service – and their hard work in building an IRS that works for the American people.