I’ve written before about how Congress’s insistence on gutting the IRS has already resulted in more headaches for taxpayers and, eventually, will likely necessitate higher statutory tax rates to make up for the government’s deteriorating ability to collect tax revenue. Today, the National Taxpayer Advocate, the ombudswoman who represents the interests of American taxpayers, released a report with updated numbers on how budget cuts are affecting service.
The key chart is this one, which mashes a bunch of different trends together:
The number of tax returns (purple) has risen over time, as you might expect given population growth. Meanwhile, inflation-adjusted funding for the IRS (green line) has fallen sharply, thanks to a combination of sequestration and vengeance for the IRS tea party scandal. As a result, levels of service (aqua bars) — which here refer to the percentage of telephone calls the IRS is able to answer from taxpayers seeking to speak with a live human — have been tumbling. Not shown here is the fact that the tax code has gotten more complicated over time, leading more taxpayers to need assistance from IRS reps. The current filing season is likely to see even more confusion amongst taxpayers, given the complicated tax implications of the Affordable Care Act.
Let’s look a bit more closely at those telephone stats, shall we?
About half of calls are expected to get answered this fiscal year … after an average waiting time of 30 minutes. Because yeah, taxpayers have nothing better to do than spend a half hour on hold trying to figure out which form you need. Again, don’t blame the IRS for wasting your time: blame Congress for cutting IRS resources.
It’s not just taxpayer time that’s being sacrificed by IRS budget cuts. It’s also, for some, their money. The agency has become increasingly backlogged in answering correspondence, which means disputes over, say, math errors on a tax return can drag on and on, meanwhile accumulating bigger penalties.
“For a taxpayer who owes additional tax, interest charges and penalties generally will continue to accrue,” the report says. “For a taxpayer who has overpaid, a delay in processing correspondence may translate into a delay in receiving a refund.”
Here’s a chart showing what share of correspondence from taxpayers responding to a notice about additional funds due has been gathering dust for more than the amount of time the IRS considers acceptable (generally, 45 days):
Frustration borne from such poor customer service is likely to wear on “tax morale” and hurt rates of voluntary compliance, which is the primary way our taxes are collected (98 percent of tax revenues are remitted voluntarily and in a timely manner; less than 2 percent is collected through enforcement actions). And meanwhile, individuals and companies hoping to play fast and loose with their interpretation of the tax code are likely able to get away with more, since budget cuts have also whittled down the IRS’s ability to catch tax cheats. In short:
+ deep-pocketed companies’ ability to construct ever more complicated tax-avoidance strategies
+ the IRS’s dwindling ability to respond to tax evasion and aggressive tax avoidance through enforcement actions
= declining ability to collect taxes, and the specter of higher tax rates — on law-abiding citizens like you and me — to make up for it.