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The IRS Puts America On Hold



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The IRS’s mission statement claims that it aims to “provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”

Well, not lately. The data show that taxpayers are receiving increasing worse services from the IRS: They get fewer of their calls and questions answered by the agency’s customer-service representatives (CSR on the below chart), and they have to wait longer to get someone from the agency on the phone. This chart by my colleague Jason Fichtner shows the trend:

In response, the IRS has decided to stop answering the more complicated questions. That’s right: The federal government has created a terribly complicated tax code, and then . . . decided that it will take its time answering taxpayers’ hardest questions about the whole mess.

But, as my colleagues noted in a 2013 Mercatus study, the inability to answer phone calls, as shocking as it may be, is the least of the IRS’s problems. The tax code is so complicated that Treasury doesn’t collect all the taxes due, while the cost taxpayers pay to try to comply with the tax code is exorbitant. According to Fichtner and Jacob Feldman:

The Treasury fails to collect approximately $450 billion per year in unreported taxes even after IRS enforcement efforts. Because the tax code primarily relies on voluntary reporting of income with only a few enforcement efforts, an unanswered phone call can mean uncollected revenues. Economic literature suggests that simplification of the tax code by eliminating complex provisions and lowering marginal tax rates would increase income reporting. 

Simplification of the tax code isn’t just about improving income reporting. Perhaps more than forgone revenues, tax code complexity costs Americans anywhere between $215 billion and $987 billion in accounting and economic costs. 

As of 2011, Americans spent 6 billion hours filing taxes. This is equivalent to an annual workforce of 3.4 million, a population that could be the third largest city in the United States. Summing the costs of paying accountants and the monetary value of time spent filing taxes, the total is estimated between  $67 billion to $378 billion per year. The economic costs of taxation are still larger. $148 billion to $609 billion of economic growth cannot occur as a result of tax disincentives from tax provisions and marginal rates. 

Maybe the president can make the simplification of the tax code the centerpiece of his State of Union address tonight, rather than the old and tired policies he is likely to call for.



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