In 2022, the Government Accountability Office released a finding that would have been almost unbelievable in a functioning democracy: Americans earning between $25,000 and $50,000 per year — those claiming the Earned Income Tax Credit — were audited at roughly the same rate as taxpayers earning over $500,000, and at higher rates than most middle-income earners. The agency tasked with collecting revenue impartially was disproportionately scrutinizing working poor families for the crime of claiming a refundable tax credit, while ultra-high-income filers with complex returns, multiple entities, and sophisticated tax counsel faced audit rates that had fallen precipitously over the prior decade. This is audit asymmetry: the systematic divergence between where the tax gap actually lives and where the IRS chooses — or is forced by resource constraints — to look.
The IRS's budget declined in real terms by roughly 20% between 2010 and 2022, with enforcement resources falling even more steeply. The number of revenue agents — the employees capable of auditing complex returns — fell by more than 35%. The effects were predictable and documented. Audit rates for the highest-income taxpayers (over $10 million in income) fell from roughly 18% in 2010 to under 3% in 2018. Audit rates for large corporations fell similarly. Meanwhile, the audit rate for EITC claimants remained elevated not because of deliberate targeting but because EITC audits are cheap and automated — they flag discrepancies in reported income without requiring any human agent to examine complex financial structures. The IRS was auditing those it could audit cheaply, not those most likely to owe additional tax.
The tax gap — the difference between taxes legally owed and taxes actually paid — was estimated by the IRS at approximately $600 billion annually as of 2022, with updated estimates suggesting the figure may exceed $700 billion. The distribution of the gap is informative: about two-thirds arises from underreported income, and a disproportionate share of that underreporting occurs in categories with low information reporting — sole proprietorships, partnerships, S corporations, and pass-through entities that are disproportionately used by high-income earners. W-2 wage earners, whose income is reported to the IRS by employers, have compliance rates above 99% because the information is already in the IRS's systems. Sole proprietors, whose income depends on self-reporting, have compliance rates around 55%. The EITC overpayment rate — the fraction of EITC paid out that was incorrectly claimed — is estimated at roughly 25% of the credit, but the credit itself is relatively small per claim. The absolute dollar value of EITC errors is dwarfed by the absolute dollar value of underreporting by high-income earners and businesses.
Audit asymmetry is not merely a fiscal problem; it is a governance problem. Voluntary tax compliance — which forms the backbone of the American tax system — rests on two psychological pillars: the belief that the system is fair, and the belief that cheating will be detected. Audit asymmetry undermines both. When working families claiming a modest refundable credit face audit at rates comparable to millionaires, the system's fairness is visibly compromised. When wealthy taxpayers and their advisors know that the probability of audit is vanishingly small, the deterrent effect of enforcement is correspondingly reduced. The resulting equilibrium is one in which those with complex income structures and sophisticated advisors can engage in aggressive tax positions knowing the probability of challenge is low, while those with simple income structures face disproportionate scrutiny of their claims.
The political economy of the IRS's budget decline is illuminating. The agency's funding is set by Congress, and congressional opposition to IRS funding has been sustained and deliberate since the 1990s. The anti-tax political coalition that emerged in the Reagan era found in IRS budget cuts a mechanism for reducing effective tax enforcement without the political cost of formally cutting statutory tax rates. The IRS cannot advocate for its own budget in the same way that other agencies advocate for theirs, which leaves it structurally vulnerable to appropriations pressure. Proposals to increase IRS funding consistently encounter the characterization that they represent "weaponizing" the IRS against ordinary Americans, a framing that is politically effective despite being empirically inverted: the primary beneficiaries of reduced IRS enforcement capacity are high-income filers and large corporations, not the ordinary taxpayers whose audit rates have been largely unaffected by enforcement budget cuts.
The Inflation Reduction Act of 2022 appropriated approximately $80 billion for the IRS over ten years, with a substantial portion directed toward enforcement capacity. Treasury and the IRS pledged that the new resources would be directed at high-income filers and large corporations rather than those earning under $400,000. Independent estimates suggested the investment could close a substantial portion of the tax gap and generate net revenue far exceeding its cost. Within two years, however, the Fiscal Responsibility Act of 2023 and subsequent appropriations rescinded approximately $21 billion of those funds under political pressure, before the new audit infrastructure had been substantially built. The episode illustrated the political dynamics that have sustained audit asymmetry: it is in the structural interest of those with the most political power to maintain an IRS that cannot effectively audit them.
From a stewardship standpoint — Law 4 — audit asymmetry represents a failure of institutional design: the machinery of collective revenue collection has been systematically degraded in ways that benefit the most powerful members of the collective at the expense of the revenue base and the principle of equal treatment under law. Restoring audit symmetry requires not just funding but institutional redesign: modernizing IRS information technology (some of which dates to the 1960s), rebuilding enforcement expertise that has been lost through retirements and non-replacement, developing data analytics capacity to identify high-probability high-value audit targets, and maintaining political insulation sufficient to allow the agency to perform its statutory function.