Internal Revenue Service Commissioner Douglas H. Shulman told senators Wednesday that the House-passed budget resolution would “increase the deficit” by forcing cuts that would lose revenue for the tax-collection agency.
“Cuts of this magnitude would be substantial and affect all of IRS operations,” Shulman told the Appropriations Committee panel that oversees financial services and government, which was taking up the agency’s budget request.
Congress has not recommended a specific budget for the agency for the next fiscal year. A resolution approved this spring by the House would cut $2 billion from the budgets of the IRS, several other agencies and the District. The IRS would take the largest hit.
Such a cut “would actually increase the deficit by decreasing revenue,” Shulman told senators, from poor customer service to diminished enforcement actions against tax cheats.
The IRS would have fewer tools to close the gap between the taxes Americans owe and taxes they pay, he said, a sum that stands at $345 billion every year.
The IRS is seeking an increase for next year of almost 10 percent over the $12.1 billion budget the agency will receive this year. Much of the new money would step up enforcement efforts. By hiring about 5,000 new agents, the agency hopes to save taxpayers $1.3 billion by 2014, when, Shulman estimated, every dollar spent on enforcement would bring in $6.
The IRS processed 140 million individual income tax returns in fiscal 2010, collecting $2.3 trillion.
Lawmakers were eager to hear how the agency plans to whittle down the $345 billion in missing or late taxes, which represents a 16.3 percent rate of noncompliance.
Sen. Richard J. Durbin (D-Ill.), the subcommittee chairman, called the money an “untapped resource” that is contributing to the country’s mounting deficit. He asked Shulman whether the IRS could pursue tax cheats without requiring more disclosure and reporting by individuals and companies. Durbin said Congress was forced to retreat on a provision of the new health-care law that would have required small businesses to account for more of their transactions.
Shulman said that he is aware that requiring more paperwork is politically unpopular with taxpayers but that “the only effective way to really go at the tax gap is through third-party information reporting.”
The collection gap “is like a deep-shale oil reserve,” Shulman said. “It’s not money that is easily tapped.”
Sen. Mark Kirk (R-Ill.) said the IRS should devise a system to allow taxpayers to fill out their returns on the agency’s Web site, eliminating the need for preparers.
“This is an incredible drag on the economy,” Kirk said.
Shulman responded that although better technology is a high priority, “we’ve got a very big plate of technology [projects] now.”