In a 2015 comment on increasing risks to tax law enforcement by the Internal Revenue Service (IRS), the Government Accounting Office observed that "since 2010, IRS’s budget has been reduced by about 10 percent, and IRS enforcement performance and staffing levels have declined." IRS analysis of tax data showed that tax evasion (illegal non-payment of taxes owed -- the "net tax gap") amounted to $290 for tax year 2001 and and $385 billion for 2006, an increase of $19 billion/year.
At that rate of increase, the net tax gap would be about $575 billion for 2016, although recent informal IRS estimates put tax evasion at closer to $400 billion.
Congress has been warned for years that the IRS needs a higher budget to provide customer service, e.g., answer phone calls, and reduce the annual level of tax cheating. Congresses controlled by both parties have ignored the warnings, and in recent years, it has reduced IRS's budget. The IRS budget cut for 2016 is estimated to be over $500 million.
According to one source, IRS critics argue that the budget cuts educing the IRS budget “will result in more efficient use of funds and more accountability to the American people.” Some or most congressional republicans see the IRS as abusing its power and want to see the IRS shrink as a way to become more efficient and less abusive.
In 2012, I asked the IRS office in charge of fielding IRS operations questions when it planned to do another detailed tax compliance study to see what level of tax evasion existed after the 2001 and 2006 studies. That office said that they wouldn't answer the question because it was outside their purview. I rechecked and confirmed that that office was responsible for answering the question.
Congress has a track record of threatening federal agencies with budget cuts to curtail generation of data that congress doesn't the public to become aware of. For example, congress has effectively blocked federal funding of research into the public health impacts of gun ownership since 1996. I took the IRS's non-answer to my question as an indication that congress had threatened the IRS with even bigger budget cuts if it conducted another detailed tax evasion study. Presumably, tax evasion has been increasing since 2006 and congress doesn't want the public to know how bad tax cheating really is, even if congressional actions have gutted IRS functions and left many honest taxpayers on their own and many tax cheats unpunished.
Over the years, tax cheats have not paid trillions, even though the estimated return on investment is about $4 dollars collected for each dollar added to the IRS enforcement budget. The IRS Commissioner observed that “essentially, the government is losing billions to achieve budget savings of a few hundred million dollars.”
For people who value the rule of law, the situation can easily be seen as one where years of corrupt and incompetent, but bipartisan congresses have accepted massive tax evasion in return for campaign contributions, to vindicate anti-government ideology, curb real or perceived abuses and/or other reasons.
One observer sees the situation as “Congress' gift to tax cheats.”
If the concern over IRS abuse is real and non-trivial, should that concern trump the rule of law, or, is this a situation where congress fully supports the rule of law, and there is no cause and effect correlation between reduced IRS budgets and massive annual tax evasion? Is it plausible that congress threatened the IRS and forced it to prevent any further analysis of the size of tax cheating, thereby keeping the data and the issue off the public's radar screens?
If you are an honest taxpayer who pays your full federal tax bill, does roughly $400-$600 billion per year in tax evasion seem fair or reasonable? Does it matter that there would be a 4:1 return on investment in tax law enforcement for at least a portion (~ 80-85% ?) of evaded taxes? Is the situation one of (i) congressional corruption, (ii) congressional incompetence, (iii) justified anti-government ideology, (iv) some of all three, (v) none of those, or (vi) a combination of multiple factors?
B&B orig: 9/6/16
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