Despite emails scandal, IRS bashing often shortsighted
The controversy over the missing e-mails at the Internal Revenue Service will likely be around for a while. House Republicans are right to be suspicious over IRS claims that the e-mails sought by House investigators have gone missing from the computers of several top IRS administrators, including Lois Lerner, the official in the crosshairs of House Republicans who charge that the agency was extra tough on conservative groups seeking tax exempt status.
In a recent editorial, the New York Times argues that the missing e-mails are at least partially the result of several years of budget cuts imposed on the IRS by House Republicans. The Times argues that smaller IRS budgets have led to staff cuts and ensured the failure to maintain agency technology, which is directly linked to the hard drive crashes on Lerner’s office computer as well as the computers of other top agency officials.
It seems like a stretch to believe IRS budget problems caused the emails sought by House investigators to disappear — conveniently for Lerner and the others. But the Times is right to point out other consequences of Congressional budget cuts for the tax collection agency.
One direct consequence of a smaller budget is that there are fewer IRS auditors. And while some people might take pleasure in that fact, thinking their chances of being audited are now less, the story is much more complicated.
Most IRS audits target wealthier taxpayers, those making $200,000 a year or more, because detailed audits of tax returns of these wealthier taxpayers are more likely to find cheating — bringing more revenue to the U.S. Treasury. The Times notes that in 2010 about 30 percent of the returns of taxpayers claiming $10 million or more in income were audited. That figure for 2013 was 24 percent.
Again, that’s good news for tax cheats, but it’s not a good deal for honest taxpayers. It’s worth noting that personal income taxes represent about 47 percent of federal government revenue.
Few people have warm thoughts about the IRS, and many taxpayers might be pleased to learn that the agency is struggling with budget cuts. But few people consider the consequences for themselves if reduced audits means more tax cheating. The more tax cheating there is, the more honest taxpayers have to pay to make up the difference.
The difference between money owed through federal income tax and the actual amount collected is called the tax gap. The latest estimates for the tax gap are about $400 billion. That’s $400 billion that is owed, mostly by wealthier people and small business people, that’s not collected — meaning higher taxes for other taxpayers.
It’s not hard to understand why IRS-bashing is popular; nobody likes to pay taxes. But apart from heavy-handed IRS notices and the latest charge of political bias, the IRS is tasked with the difficult job of enforcing complex and loophole-ridden tax laws produced by Congress.
Honest taxpayers should realize that cutting the budget for the IRS is not in their best interest or the best interests of the country. Rather than bashing the agency, there should be support for IRS efforts to close the tax gap, including more funding from Congress for that effort. Studies suggest that $1 dollar of increased IRS enforcement brings in about $5 more in tax revenue — a good investment.
The next time politicans suggest cutting the IRS budget or otherwise defunding the agency, taxpayers should think of the consequences — and of all the tax cheats getting away with not paying their fair share through the use of offshore accounts, secret Swiss bank accounts, complex tax-avoidance schemes, under-reporting income or over-reporting expenses. Tax cheating hurts all honest taxpayers, and cutting the IRS budget only makes that problem worse.
