Biden’s IRS ‘Reform’ Is No Reform at All

H ow many IRS agents do we need? As many as it takes to get the job done — no more, but no fewer.

Somehow, that has become a radical notion, but it shouldn’t be.

It remains the case that the right fix for the IRS is not and never has been crippling the agency — but neither is the right fix doubling the agency’s staff and merely doubling its dysfunction.

The IRS is a problem agency and long has been. (If memory serves, I was the first columnist to write about the targeting of conservative groups under Lois Lerner way back when.) But unless you have taken up the mantle of Rothbardian anarcho-capitalism — and one can certainly see its attraction! — the federal government is going to keep doing things, and having a Marine Corps and a Border Patrol and NASA costs money, oodles of it. That means that we need a revenue-collection agency. The fix for an overbearing and corrupt IRS isn’t a permanently hamstrung IRS — it is a reformed IRS.

We should not minimize the problems at the agency — but we should put them into some context. Practically every major police agency in this country has been at one time or another penetrated by organized crime: NYPD detectives once acted as hitmen for the Lucchese and Gambino crime syndicates, LAPD officers were robbing banks and running a massive drug operation in the Ramparts years, etc. That doesn’t make “defund the police” something other than a dumb idea. Though the Secret Service is legendary for the misbehavior of its agents, somebody still has to do what it does. (But do we have to give it the dystopian, Kafkaesque name “Secret Service”?) Our public schools have been centers of corruption at times, involved in crimes from the falsification of test results for financial gain to the sexual abuse of minors, but we aren’t going to stop having schools. So it must be for the challenge of collecting tax revenue: We may not need this agency — in fact, there is a pretty good case for starting from scratch — but we are going to need some agency, and that agency inevitably will be subject to some of the same temptations and mal-incentives as the one we already have.

The Biden administration sees things differently. It does not propose to reform the IRS at all — it proposes to use the agency as a jobs program. And that is liable to make things worse rather than better: Rewarding a corrupt and ineffectual agency by doubling its payroll sends precisely the wrong signal.

And it is not clear that the agency needs more employees at all. By my rough estimate, the United States already has about twice as many federal tax officers per capita as does thrifty and well-governed Switzerland. If the Biden expansion comes to pass, the IRS will have about five times as many employees per capita as does its Swiss counterpart — and it would be a very considerable understatement to observe that Switzerland has much more comprehensive tax compliance and a much more orderly revenue system than does the United States. It achieves this in part by relying on a strategy that we are supposed to know something about here in the United States: federalism. The national tax authority bears the main responsibility for collecting some taxes (such as the VAT and the transfer tax) while the cantons, acting under its supervision, collect income taxes, keeping a small share of the revenue for themselves and forwarding the rest to the national government. In the Swiss federal system, the cantons are similar to our states but are in population terms more like our counties, and, as scholars have long observed, people tend to be more cooperative (more trusting and more trustworthy) when dealing with local authorities to whom they are more intimately connected. Our countries are different in fundamental ways that make it impossible to simply replicate the successful policies of one in the other, but the model of devolution is worth considering — not only in tax collection but also in matters such as health-care benefits and social-welfare programs, which often are administered at the regional or local level in the Scandinavian countries our progressive friends profess to admire.

The problem is that this ends up being a cascading project, like remodeling your house: Start changing the bedroom drapes in June and by the end of the year you’ve spent the cost of a new car on kitchen cabinetry. You can’t really reform the IRS without reforming the tax code — and if you are going to reform the revenue side of the ledger, it would be best to address the spending side of the ledger at the same time. Democrats have no interest in reforming spending and always are keen to expand the government payroll on any pretext; Republicans, for their part, are radical libertarians on Tax Day but proudly come out of the closet as socialists the minute anybody starts talking about reforming Social Security, Medicare, and the other entitlements that are the main drivers of federal spending.

The complexity of our tax system is a boon to enterprising politicians, who can engage in the cheapest and most ludicrous kind of demagoguery about the wealthy not paying their “fair share” — complaining that the “hedge-fund guys are getting away with murder” — while at the same time larding up the tax code with all manner of special-interest giveaways and subsidies for politically influential industries and voter blocs. That complexity also constitutes a tax in its own right: By some estimates, U.S. businesses spend more money complying with the tax code than they actually pay in taxes. A system with less complexity and lower compliance costs would offer some real benefits — one of which might be, possibly, reducing the number of people we employ as revenue agents.

So there are three linked problems: The first and simplest one is reforming the revenue agency or building a new one along more intelligent lines; the second and more difficult one is reforming the tax code itself, which creates too many opportunities for political misadventuring and corruption; the third and most difficult one is imposing some discipline and rationality on the spending side of the equation, which is what must in the long term drive the revenue side.

We aren’t going to get any of that done while pretending that the IRS’s headcount is the real problem or the real solution.