The Internal Revenue Service (IRS) struggles every day with an infernal problem. It’s expected to separate taxpayers from their hard-earned money and leave them feeling well-treated at the same time.
They don’t feel well-treated, far from it. According to the 2019 report to Congress by the National Taxpayer Advocate: “The current state of IRS customer experience lags far behind other government agencies and the private sector”
But the IRS doesn’t lag behind when it comes to return on investment, or ROI. That’s the standard measure of “bang for the buck”—in this case how many dollars the Treasury takes in for each dollar spent on enforcement.
By that yardstick the IRS is up in the sky with Lucy. It might be flying even higher if Republican lawmakers hadn’t meat-axed its funding.
Treasury figures put the agency’s ROI at roughly $5 for each $1—a return of 400 percent. A report from the Government Accountability Office cites even higher enforcement returns, from $11 to $13 for each $1. In late 2018, the non-partisan Congressional Budget Office (CBO) evaluated the IRS as a way to reduce the deficit. By the CBO’s calculations, increases in the agency’s budget could cut federal red ink by $35 billion over the decade 2019 – 2028.
ROI dollars made not a dime’s difference to the GOP, which sent Congress off on an IRS budget-slashing spree. Rep. Dave Joyce (R-OH) remembers it fondly: “I know that when we were in the majority [from 2010 – 2018]…we took great pleasure in cutting the amount of money that was going to the IRS every year.”
The cuts also warmed the hearts of tax cheats and potential cheats. With enforcement funds gutted, audits have become far less likely.
By 2017, for the first time since 1953, the IRS had fewer than 10,000 auditors. That led to 675,000 fewer audits, 42 percent less than in 2010.
Audit rates plunged as well, especially for upper-income taxpayers. Rates for incomes from $200,000 to $10 million and up were roughly 80 percent lower in 2018 than in 2011. Audits of low-income Americans dropped too, but not nearly as much. In fact, Americans earning under $25,000 had a higher audit rate in fiscal 2018 than those with incomes up to $500,000.
Missteps by the IRS fed into the budget-cutting fervor, and share the blame for the staff reductions and service shortfalls that inevitably followed. When President Trump’s 2019 budget proposed another $738 million cut, Americans for Tax Reform said the agency itself had supplied the hatchet: “While IRS bureaucrats claim the agency is underfunded, the IRS has proven…that it cannot properly use the resources it already gets.”
Trump would later switch sides and ask for a small increase in fiscal 2020 IRS funding. His budget request also proposed additional money “to expand and strengthen tax enforcement.” It would cost $15 billion and generate $47 billion in revenue.
Besides ROI, there’s a second good reason not to bash the IRS.
Most Americans never even think about cheating on their taxes. They’ve been warned away by the words on their W-2 statements, “This information is being furnished to the Internal Revenue Service.” No surprise, the tens of millions who get W-2s lead the nation in tax honesty: they report 99% of their income from work.
Plenty of taxpayers, however, do their own income reporting. Their numbers come only from them, verified by no other source.
It’s an open invitation to play fast and loose, and do they ever. The IRS estimates that self-reporters fail to report almost two-thirds of what they make at work. Their under-reporting is the biggest single part of America’s tax gap, the difference between taxes owed and taxes paid.
The gap now totals $458 billion a year. Until Congress makes all workers subject to third-party reporting, the IRS is the only way to recover at least some of those billions.
In 2005 Stephen J. Dubner and Steven D. Levitt co-authored the best-selling book Freakonomics. In a 2006 op-ed, they let taxpayers in on a bitter truth:
Unless you are personally cheating by one-fifth or more, you should be mad at the I.R.S.—not because it’s too vigilant, but because it’s not nearly vigilant enough. Why should you pay your fair share when the agency lets a few hundred billion dollars of other people’s money go uncollected every year?
Instead of getting mad, let’s hear some cheers. Saddled with an infernal job, decimated by budget cuts, the IRS fights a lonely fight for all honest taxpayers. And remember, its ROI is sky-high.
- This article first appeared at www.nydailynews.com