Congress is considering further gutting the Internal Revenue Service’s enforcement capacities even as a new report from the Taxpayer Advocate shows that previous rounds of budget cuts have put the IRS dangerously close to being unable to perform basic enforcement and compliance functions.
Lawmakers have cut the IRS’s budget in each of the past five years all while giving the IRS increased oversight responsibility under the Affordable Care Act and Foreign Account Tax Compliance Act (FATCA). Further, the IRS processed 1.5 million more filings this year than last. This is a practice that hurts law-abiding taxpayers and rewards tax evaders.
The IRS budget is down 17 percent from 2010, adjusted for inflation, with another $838 million in cuts scheduled for 2016. These cuts are forcing the IRS to reduce services that help citizens pay their taxes according to the Taxpayer Advocate. During the 2015 tax season, IRS customer service representatives answered 37 percent of phone calls and callers waited an average of 23 minutes to speak with a representative.
Furthermore, the IRS automatically hung-up on 8.8 million callers–a 1500 percent increase since 2014–due to an overwhelmed phone system. The Taxpayer Advocate argues that these dismal levels of customer service will result in fewer people voluntarily paying their taxes. Currently 98 percent of taxes are paid voluntarily and on time. Any drop in voluntary compliance will lead to greater enforcement costs and less revenue.
Although the IRS is choosing to focus more of its limited resources on making sure citizens pay their taxes, enforcement is still weak and getting worse. The number of employees dedicated to enforcement has dropped by 20 percent since 2010. John Koskinen, the Commissioner of the IRS, stated in January that reduced funding will result in $2 billion of lost revenue this year. This means that the $838 million in ‘savings’ from cutting the IRS budget will really result in $2 billion in losses for the entire federal government. Indeed, losses could be even greater because each additional dollar spent on enforcement yields six dollars of revenue and every dollar spent on “audits, liens and seizing property from tax cheats” yields ten dollars of revenue. In 2011, the commissioner of the IRS even testified to Congress that every dollar spent on enforcement, modernization, and management saves the government $200.
Currently there is a proposal attached to the highway funding bill that requires the IRS to outsource some tax enforcement to private debt collectors. This policy was practiced from 2006 to 2009 and lost money. Critics are also concerned about an increase in scammers who claim to represent the IRS, an alarming trend that has been growing in recent years. Clearly, the government would have to compensate private collectors, but it would be far more cost-effective to fully fund IRS enforcement.
Right now there is no end in sight for the fiscally irresponsible budget cuts to the IRS. Even with the $75 million increase in funding for taxpayer services, Congress is proposing to cut the 2016 budget by more than double the 2015 cuts and spending $2.8 billion less than what President Obama requested. Critics of the IRS argue that reducing the IRS budget will result in more efficient use of funds and more accountability to the American people. The main issue with this argument is that the IRS has already employed many cost saving techniques such as encouraging electronic filing and referring taxpayers to the IRS website rather than speaking with a representative. As noted by the Taxpayer Advocate report, the cuts have already begun to impact taxpayer filing services, fraud prevention, FATCA enforcement, and digital security.
The IRS needs more funds, not fewer, to properly serve taxpayers, maintain high levels of voluntary compliance, and enforce the laws Congress has passed.