There is a silent crisis brewing at the Internal Revenue Service, with Republicans looking at another round of cuts for the embattled agency even as it prepares to implement a massively complex tax overhaul.
An early warning sign of the agency’s weakened state came on Tax Day this year, when it suffered a massive systems failure as taxpayers across the nation attempted to file their taxes. The IRS was forced to extend the deadline by one day, an event Treasury Secretary Steven Mnuchin called “completely unacceptable.”
And yet, funding continues to inch downward: $11.5 billion in 2017 to $11.4 billion in this year to $11.2 billion in the 2019 budget passed by the Senate and now being negotiated with the House.
The strain from years of budget cuts is showing up in core functions. Acting IRS Commissioner David Kautter recently told Congress that the next round of planned service cuts could mean 40 percent of calls from taxpayers seeking assistance by phone this year may go unanswered. Audits are down 37 percent. Who’s skating? Just who you would think — millionaires and large corporations.
The chances of someone with more than $1 million in income being audited has dropped by more than half in recent years, from nearly 13 percent in 2011 to 5.8 percent. For large corporations, the rate has dropped from 17.8 percent to 7.9 percent. The Government Accountability Office estimates that three-fourths of IRS staff cuts in recent years have come out of tax enforcement. That has led to fewer fines and asset seizures. New investigations into delinquent taxpayers have plummeted 85 percent in five years. The tax gap — the total amount of taxes owed vs. what’s paid — is well more than $450 billion. That’s equal to the entire amount Senate Republicans threatened to cut from Medicare in 2017. In its diminished state, IRS enforcement recaptures about 10 percent of that.
Some may be tempted to offer up a silent cheer that the dreaded “tax man” lacks the resources to come after that last dollar owed the government. But everything the federal government does, from health care to national security, depends on that revenue. The U.S. has a voluntary system of tax filing, but human nature being what it is, compliance is aided greatly by both enforcement for would-be tax cheats and assistance for those who need help figuring it all out.
Perhaps just as important, the IRS is entrusted with Americans’ most sensitive financial data. Yet it now fends off an estimated 2.3 million cyberattacks a day, armed with creaky, outdated technology that has at its center a mainframe dating back to the 1960s.
The role of the modern-day IRS is more expansive than in years past. A majority of Americans now expect to be able to file taxes online and have any refunds deposited electronically in their own bank accounts. Parents and college students depend on the IRS website to seamlessly transfer tax data to FAFSA, the agency in charge of federal college assistance. The IRS also administers the Earned Income Tax Credit, which has grown over the decades into one of the nation’s largest antipoverty programs.
All this comes on top of its mission to enforce tax laws, investigate potential scofflaws, assist taxpayers and impose fines, levies and seizures when necessary. Every time Congress passes a credit or exemption, or tinkers with the tax code in any way, a small army at IRS must interpret the law, develop guidelines for it and prepare to educate and implement.
That makes the 23 percent, inflation-adjusted drop in its budget over the last eight years downright irresponsible. In her last year-end report to Congress, Nina Olson, the national taxpayer advocate, said funding cuts had rendered the IRS unable to service taxpayers, upgrade its technology or maintain compliance programs. “Shortcuts have become the norm,” she said.
Shortcuts like that will only shortchange Americans whenever they have to interact with this vital agency.