18

Also needed: better tax enforcement through restored and increased funding of the IRS. An expert review of data released by the Congressional Budget Office and the Treasury Department indicates that every $1 of additional investment in the IRS would yield $11 in increased tax collections and between 2020 and 2029 would raise $1.1 trillion in additional revenue over and above current projections.

https://www.investopedia.com/articles/personal-finance/082415/whats-wrong-american-tax-system.asp

Why did the U.S. government lower the funding of the IRS? According to the above, funding the IRS is a good investment for the U.S. government allowing it to generate more revenues, so why did the U.S. government didn't maintain the funding or even increase it?

39

There has been a steady decline in enforcement of tax laws against the wealthiest individuals since the Reagan administration. The people who stand to lose if the tax laws are adequately enforced have bought themselves some democracy and managed to get legislators (mostly Republicans) to cut enforcement funding from the IRS and to also legislate rules that hamstring what enforcement there is.

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  • 5
    which is particularly stupid, if you look at it from the perspective of whats good for the country. IRS has a 5:1 ROI, even 10:1 from some reports irs.gov/pub/irs-pdf/p4450.pdf Jul 25 at 14:07
  • 13
    “For the good of the country”? This is the US, the land of unenlightened self-interest.
    – Don Hosek
    Jul 25 at 14:24
  • 15
    I downvoted this because although I don't think it's wrong per se, such a bold claim requires extensive sources.
    – user253751
    Jul 25 at 16:09
  • 13
    As it stands, this answer is unsubstantiated rumor.
    – qwr
    Jul 26 at 6:51
  • 7
    @AdilMohammed doesn't matter what the other answer has, this answer has no sources
    – user253751
    Jul 26 at 8:35
37

This is not caused by the US government in general, this is caused by the Republicans who have been in control of the House for most of the past three decade.

Republicans are ideologically opposed to a strong government and want to minimize taxes in general. Thus for ideological reasons they tend to view the IRS as an enemy: it's the agency in charge of collecting taxes and fund the government.

From a detailed article by Eric Levitz:

The right’s fixation on IRS malfeasance reflects its opposition to the agency’s core mission. For the bulk of its existence, the conservative movement’s leadership has disdained income taxation in general, and progressive taxation in particular. This antipathy is implicit in the modern GOP’s unwavering commitment to lowering federal taxes on the wealthy, irrespective of the nation’s contemporary tax rates, budget deficit, or national spending.

In the past decade Republicans have been quite successful at decreasing the IRS budget, and especially defunding its enforcement division:

Upon taking the House in 2011, Republicans set about slashing the IRS’s budget, which fell from $14 billion that year to $11.5 billion in 2020. As a result, the agency’s number of staffers declined by 22 percent, while its enforcement division cut its payroll by 30 percent — even as the number of individual tax returns in the U.S. grew by more than 7 percent

Between 2010 and 2018, the audit rate on returns with more than $1 million in income dropped by 63 percent. In the former year, nearly all corporations worth over $20 billion were subject to audits; in the latter year, only half were. White-collar crime went rampant. The tax gap — the difference between what Americans owe to the federal government and what they pay — swelled to an estimated $441 billion in 2013, and $584 billion in 2019. The current IRS commissioner, Chuck Rettig, believes that these were underestimates, and that the current tax gap is closer to $1 trillion.

Mathematically this strategy causes the government income to decrease, thus increasing the deficit:

It’s worth noting that no great scandal initiated the GOP’s defunding of the tax police. Rather, House Republicans pursued downsizing the IRS as an end in itself. They saw that their budget cuts were increasing the deficit by reducing tax collections, and then pushed for yet more budget cuts anyway.

Republicans also claim that the IRS is corrupt and/or politically biased against them. The same article debunks these claims.

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    "Thus for ideological reasons they tend to view the IRS as an enemy:" - I'd argue it's less "ideological" and far more "pragmatic" - or cynically self-interested, imo.
    – Dai
    Jul 24 at 17:10
  • 13
    @Dai I'd argue it's both. Ideologically they support the proposition that government doesn't work; this policy helps ensure it doesn't. Jul 25 at 11:40
  • 6
    "Republicans are ideologically opposed to a strong government." That's not entirely true. They are opposed to government control over aspects of life they don't want to be controlled.
    – chepner
    Jul 25 at 18:09
  • 7
    @Dai For Republican legislators, yes. For a large portion of the Republican voter block, rural voters in the southern and central states who are statistically some of the poorest in the country and most reliant on welfare, it's entirely ideological - they benefit in no way from (and are in fact harmed by) reduced tax enforcement on people with >$1 million income per year or large corporations. It's just that the ideology has been entirely constructed for them and fed to them by the people that do benefit.
    – Kayndarr
    Jul 26 at 0:51
  • 5
    Republicans have socially conservative and small government wings, sometimes in conflict.
    – qwr
    Jul 26 at 6:59
9

The IRS is one of the government agencies that regularily steps on the wrong toes - those of people who have money, influence and connections. At the same time it doesn't have any active programs that directly benefit any of those people, because it doesn't do the spending side.

As a result, it has few people who speak or lobby in its favour and many who actively work against it. On the abstract, most people agree that the IRS is doing a necessary and beneficial job - but when it comes to the specific actions, especially those that affect us, we aren't exactly fans.

And while spending on the IRS would have a positive ROI, the same is true for the other side, especially considering the very rich: Spending to avoid paying taxes, be it on tax advisors, corporate lawyers to structure your company or investments in a way that avoids taxes, or lobbying against new taxes, for the reduction of old taxes, or the reduction of enforcement also has a positive ROI.

This is not limited to the IRS, but a global phenomenon. When the Cum-Ex scandal became public, damage control went into overdrive, and as a result many of the penalties stand uncollected to this day. In my country, a unit of our IRS equivalent that uncovered massive tax fraud among the rich was disbanded instead of promoted. And so on.

tl;dr: Nobody particularily likes the IRS. Most people consider it a necessary evil. Thus it has few advocates and many enemies, especially among those who pay a lot of taxes. But people who pay a lot of taxes also have ways to influence legislation.

2
  • 1
    What are your sources for these claims?
    – qwr
    Jul 26 at 6:57
  • 1
    @qwr any of the other answers sources combined with the Republican donor list
    – Hobbamok
    Jul 26 at 13:36
-4

Few people in the electorate — basically only those who don't pay taxes because they don't have work because they don't have an education — don't have a negative sentiment towards the IRS. These are the same people who don't vote, so nobody cares. OK; some of those who don't work are on the way of being educated: the students who supported Sanders.

All others are silently happy that they are never audited. Therefore it's easy to silently let the IRS die from attrition: Not many people besides the students and their teachers object, and a few Democrats, until their main donors sit them down for a talk.

The argument brought forward by conservatives who feel they must answer to the students is that the IRS is the executive arm of a tax system that is too complicated and too invasive, and nobody wants that. Funding it so that it can enforce an obsolete and byzantine code would be funding the wrong policy, as a WSJ article recently suggested, calling to "defund" the IRS.

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  • 15
    You'd think educated people would be able to differentiate between the entity that creates overly-complex tax law and sets taxation rates (Congress) and the entity that ensures that the taxes are collected according to the law (the IRS). Jul 25 at 20:53
  • 2
    @RussellBorogove I have trouble even understanding that sentence so, no. Jul 25 at 20:54
  • 9
    The IRS doesn't make the rules. Defunding the IRS only makes things better for cheaters -- that is, for people who are actively trying to hurt America for their own benefit. Jul 25 at 20:56
  • 2
    @RussellBorogove Ah. As I said, everybody tries to pay as few taxes as possible, nobody likes to be audited, so nobody likes the IRS. That is independent of any rules. Jul 25 at 20:59
  • 2
    @Peter-ReinstateMonica the budget is not the IRS. Continuing the current budget while deleting the IRS will plunge the economy into hyperinflation and China will be the new world superpower. Meanwhile, changing the budget while continuing to fund the IRS will give them what they want.
    – user253751
    Jul 26 at 8:46

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