The United States is facing a trillion dollar plus deficit. The only way to solve it is to reduce spending and/or increase tax revenues. In the current political environment, raising taxes has zero chance of approval. But there is another way to raise revenues – collect the taxes that are owed.
As I reported on Monday, the IRS has not been able to collected $385 billion in owed taxes – in part because Congress refuses to approve the extra money required to secure those taxes. To make matters worse, the IRS is reducing its revenue-generating staff in order to meet budget cuts that Congress and the President have demanded.
Here’s how Pulitzer prize-winning journalist and author David Cay Johnston explained the conundrum in a January 17th Bloomberg column:
“IRS data show that auditors assigned to the 14,000 or so largest corporations found $9,354 of additional tax owed for every hour spent testing tax returns in the 2009 fiscal year. The highest-paid IRS auditors make $71 an hour. Based on a 2,080-hour work year, that works out to around $19 million of lost revenue annually for every senior corporate auditor position cut from the payroll.”
Not everyone agrees with Johnston’s argument because some people think it makes sense to reduce IRS collections and simply shrink the government to match available tax revenues. But this position ignores the fact that money is owed by individuals and (mainly) by corporations. If we choose not to collect the money, then some people will serendipitously receive a tax windfall while the vast majority of us pick up the tab.
“It makes no economic sense to trim the ranks of auditors who generate more than a hundred times their annual salaries,” Johnston writes. “Run a business that way and you go broke.”
IRS auditor and president of the New York local of the IRS union, Frank Heffler, calls it ridiculous “to cut budgets from agencies that bring money into the government.” He notes that compliance by large companies is over 90 percent when auditors are present. “Otherwise,” he says, “they cheat.”
The IRS is a bargain – especially when compared to other government agencies. It costs just a half penny for each dollar of tax collected and its $11.8 billion budget is actually less than the Agriculture Department spends each month.
So what is driving Congress to cut auditors and thereby cripple the IRS’s ability to collect owed tax revenues? Some believe it is the rise of corporate power and changes in the campaign finance laws under Citizens United, which allows large organizations such as corporations and unions to spend all they can afford influencing elections.
Large corporations have the most to gain by cutting back on IRS enforcement. The pressure by agents to settle claims quickly and for only a tiny percent of their original amount grows as staff size decreases. “IRS budget cuts worsen budget deficits and send a corrosive signal that only chumps file honest tax returns,” Johnston writes.
Some politicians are determined to make government smaller and less powerful no matter what. But, in the battle to reduce our nation’s record deficits, there could be no worse target for reduction than the agents who help us pay our bills.