The newly passed $1.1 trillion bipartisan budget appropriations bill includes myriad spending cuts, but the $526 million cut to the Internal Revenue Service (IRS) has to be the most foolish. Under the new budget, the IRS's 2014 budget will be $11.3 billion, which is $1.7 billion less than the administration requested and about $2.5 billion higher than the radical 25 percent cut proposed by some House Republicans earlier this year.
As Nina Olsen, the non-partisan United States Taxpayer Advocate, notes in her recent annual report, cutting the IRS budget makes very little sense since every "dollar spent on the IRS generates more than one dollar in return - it reduces the budget deficit." In fact, as we've noted before, every dollar invested in the IRS can generate as much as $200 in deficit reduction.
Unfortunately, lawmakers have not seen it this way in recent years. Since 2010, the IRS has been forced by an 8 percent cut in its budget (adjusting for inflation) to reduce its staff by 11,000 people and its spending on training its employees by 83 percent. These cuts have taken place even though there are now 11 percent more individual and 23 percent more business tax returns for the agency to handle. As IRS Commissioner John Koskinen testified at his confirmation hearing in December, a recent report by the Treasury Inspector General for Tax Administration (TIGTA) found that at least $8 billion had been lost in compliance revenue due to budget cuts.
The impact on customer service has also been dramatic. In 2013, customer service representatives from the IRS were only able to answer 61 percent of the calls made from taxpayers seeking help, which is a substantial drop from the 87 percent that were answered ten years ago. In other words, some 20 million calls by taxpayers seeking help went unanswered last year, even before this new round of budget cuts.
Ironically, many lawmakers have used the IRS “scandal” (the agency’s targeted scrutiny of organizations seeking tax-exempt status by screening for political words in their names) to argue that it be punished with these and even larger budget cuts. The reality is that the lack of budgetary resources was a major driver of the short-cuts that created the “scandal.” Further budget cuts will only create more problems at the agency.
If Congress is really interested in making the IRS work more effectively and in reducing the deficit, it should substantially increase the IRS's budget. When Congress cuts the IRS's budget, the only people who are really punished are the honest American taxpayers.