You’d think there’d be enough room in a $1.3 trillion spending plan to fund all the folks needed to bring in the money.
But maybe not, especially if a Republican-controlled Congress feels like the Internal Revenue Service isn’t ready for a full reprieve from the woodshed. Republicans punished the IRS with budget cuts during the Obama administration because they believed it politicized the agency by targeting conservative groups for extra scrutiny.
Never mind that my colleague Mike DeBonis reported in October that “a federal watchdog has identified scores of cases in which the Internal Revenue Service may have targeted liberal-leaning groups for extra scrutiny based on their names or political leanings, a finding that could undermine claims that conservatives were unfairly targeted under President Barack Obama.”
Although the omnibus package President Trump signed Friday gives the IRS $11.4 billion, about the same as last year, it continues to sell the IRS short by maintaining a funding level unlikely to meet the demands of the new tax law, said Emily Horton, a researcher with the Center on Budget and Policy Priorities, a progressive think tank.
Approved with great Republican glee last year, the major tax changes bring new opportunities for “aggressive efforts by some businesses and wealthy individuals to push the law’s outer limits, and possibly beyond, to minimize their taxes,” Horton wrote in an analysis of the spending plan that covers the remainder of fiscal 2018.
Yet, “despite the once-in-a-generation enforcement challenge that the law poses,” Horton said the spending legislation leaves enforcement funding about where it was in 2017, which is down 23 percent since 2010, in inflation-adjusted dollars.
Maintaining funding at about the same level solidifies earlier cuts to the agency’s enforcement capacity. From fiscal 2010 through 2017, according to IRS data, the number of enforcement personnel dropped significantly: revenue officers, who collect taxes, down 43 percent; revenue agents, who do audits, down 30 percent; and special agents, who conduct criminal investigations, down 22 percent. Overall, enforcement employees shrank by almost one-third during those years.
If the IRS doesn’t have the resources to adequately enforce the tax law, it “could become even more costly and tilted to wealthy individuals and large corporations — who can afford to hire high-priced accountants and lawyers — than current projections indicate,” Horton added by email.
Punishing the IRS was a shortsighted policy by Republicans that hurt their constituents and all taxpayers who were forced to suffer long waits for service, and Uncle Sam, who had less money because collection operations were undercut.
That’s demonstrated by the almost $5 billion decline in enforcement tax revenue collected from fiscal 2007 through 2016, the latest year for which IRS data is available. From 2010 through 2016, audits dropped by 35 percent, and the number of criminal investigations initiated fell almost 36 percent from 2013 through 2016. Meanwhile, the tax gap — the annual amount owed minus the amount collected — runs about $450 billion a year.
Sam is leaving money uncollected because Congress won’t fund enough workers to get it.
Even the majority of taxpayers willing to pay with no enforcement action often found an IRS incapable of basic customer assistance.
“Funding cuts have rendered the IRS unable to provide acceptable levels of taxpayer service, unable to upgrade its technology to improve its efficiency and effectiveness, and unable to maintain compliance programs that both promote compliance and protect taxpayer rights,” Nina Olson, the national taxpayer advocate, said in her 2017 year-end report to Congress. “ ‘Shortcuts’ have become the norm, and ‘shortcuts’ are incompatible with high-quality tax administration. There is no doubt that the IRS needs more funding.”
David R. Burton, a senior fellow in economic policy at the conservative Heritage Foundation, isn’t so sure.
If there are “are significant problems with enforcement,” Burton said, “my guess is Congress will make adjustments, assuming the IRS is willing to subject itself to meaningful congressional oversight, which it has not done.”
Does he think enforcement capability is adequate now?
“Based on everything I’ve seen, yes,” Burton said. “But you know there’s really relatively limited information available on that. … It shouldn’t be something that has an ideological, automatic answer. You have to look at the facts. You can always spend more money on enforcement. The question is: Do you really need to? And that’s a difficult factual question.”
In addition to revenue and service, weak IRS enforcement can foster a sense among taxpayers that the government “isn’t going to be able to effectively combat fraud,” said Tony Reardon, president of the National Treasury Employees Union, which represents IRS employees. “And, you know, once that occurs then, you know, your entire voluntary tax compliance system really is at risk.”
No one likes paying taxes, but those who don’t pay what they should punish everyone else.
“A high level of voluntary tax compliance remains critical to help ensure taxpayer faith and fairness in the tax system,” says the IRS. “Those who don’t pay what they owe ultimately shift the tax burden to those who properly meet their tax obligations.”