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Despite the fact that the move would actually increase the deficit 
by an estimated $3.4 billion, House Republicans voted to slash the IRS’s budget by $600 million.
Unlike most types of public spending, increased funding of the IRS actually reduces the deficit. In some cases a dollar of additional IRS funding can generate $10 of revenue. Because of this, the non-partisan National Taxpayer Advocate noted in her recent report to Congress that the IRS should be viewed as not part of the deficit problem, but rather “as part of the solution.”
Taking this perspective, the Obama Administration proposed earlier this year to increase the IRS’s budget from $12.1 billion to $13.3 billion, in a move that was expected to actually reduce the deficit.
A $1.1 billion increase in funding would help the IRS reduce the “tax gap,” the difference between the amount of taxes owed and the amount of taxes actually paid on time. The tax gap is estimated to be between $400 to $500 billion each year.
One recent article points out that “the biggest losers” in the failure to stop tax evasion “are America’s wage earners and salaried workers, who pay an estimated 99 percent of their taxes on time because their taxes are automatically withheld from their pay and reported by a third party, their employers.” These working people — the vast majority of Americans — must pay even more in taxes when others evade theirs.
Other than tax evaders, it’s unclear who the decrease in funding is supposed to benefit. It’s certainly not law-abiding businesses or individuals, who according to a report by the law and lobbying firm K&L Gates would actually face higher compliance costs if the cut in funding is enacted.
CTJ’s director, Bob McIntyre, addressed IRS enforcement a few years ago before the Senate Budget Committee. Just returning the IRS to the staffing levels of a decade ago, he said, would require a 50 percent increase in the IRS enforcement budget. Taking this a step further, McIntyre noted that, given the increase in tax sheltering in recent years, it may be necessary to double the resources for tax enforcement in order to keep up with tax evasion.
If lawmakers are serious about reducing the deficit, then reforming and dramatically increasing (rather than decreasing) funding for the IRS is one place to start.
Photo via alykat Creative Commons Attribution License 2.0