If you're like most Americans, the IRS is an object of "fear and loathing." But
maybe it would be better if you had reason to fear the agency more. With a more
robust, aggressive tax collection agency, you might have to pay less in taxes.
The government's failure to collect the $385 billion that is owed but not paid the government each year -- called the "tax gap" -- translates to a $3,300 surtax on each taxpaying household, according to the Taxpayer Advocate Service. In other words, if the Internal Revenue Service had the capacity to catch those who knowingly or unknowingly evade the law, the burden on those who comply with the law could be lowered.
Members of Congress, concerned about the massive budget deficit, logically should boost the agency's enforcement capability. Yet Congress has cut the IRS' budget the last two fiscal years.
Obama seeks increase
Last week, in his fiscal 2014 budget proposal, President Obama requested a $1 billion increase over 2013 for the IRS -- a large portion of which would go to beefing up tax enforcement. But Congress has rebuffed similar requests in the past and the president's proposal won't help the IRS this year, as it copes with the effects from sequestration.
By failing to invest in stronger enforcement, the government is, in effect, penalizing the honest taxpayer in favor of the tax cheat. Honest business owners endure a double penalty, first from having to bear a larger tax burden and second from the competitive disadvantage he or she faces to those who cheat.
The 98,000 IRS employees -- down 10,000 from 2010 -- are charged with ensuring that more than 200 million families and business comply with the tax law. The 5,200 revenue officers -- down 874 from 2010 -- are responsible for collecting taxes. The task of these collection officers is daunting when you consider that $139 billion in unpaid taxes remain to be collected by the IRS.
Just a small increase in taxpayer compliance from 85.5% to 90% would generate $120 billion in additional revenue each year for a 10-year total of $1.2 trillion. Today, the need for the revenue is very apparent as the government endures the consequences of sequestration.
In 2012, the IRS requested $600 million to expand its efforts to investigate the use of offshore accounts by those seeking to evade their tax obligations as well as to reverse a decline in audits. The agency estimated that such an investment would, if sustained over several years, provide a nearly 5-to-1 return on investment. Yet no increase was granted.
Budget cuts also have an impact on the IRS' service to taxpayers. In fiscal year 2004, a taxpayer telephoning the IRS for assistance had an 87% chance of getting through. In 2012, the chances of getting through were only 68%. This erosion in service is also an impediment to reducing the tax gap. As former IRS commissioner Charles Rossotti once said: "If you don't provide (good service) to taxpayers you're sort of stupid, I mean they're trying to pay you money."
The tax collector will never be the object of affection or even of sympathy for most Americans. However, with more resources from Congress, the IRS can strengthen its ability to collect all the taxes that are owed while adding fairness to the system.
James Thompson is associate professor in the Department of Public Administration at the University of Illinois-Chicago.
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