The Manchin-Schumer plan for beefing up IRS enforcement is misguided. There’s a better path for the agency.
The Manchin-Schumer plan for beefing up IRS enforcement is misguided. There’s a better path for the agency.
T he $739 billion bill announced by Senate Democrats contains something magical. It will spend $80 billion to grow the IRS from 80,000 employees to over 160,000, and predicts this will generate a windfall of $203 billion from “wealthy millionaires and billionaires.”
The IRS funding section is a mere ten pages, with no accountability requirements beyond specifying that $3 billion of the $80 billion must be spent on enhancing taxpayer services. The agency is free to spend the rest on enforcement.
The IRS has stayed quiet on how it plans to use all that money, aside from one idea that was quickly shot down after public outcry. The idea was to require banks to report all transactions from any account with at least $600 in annual activity. Even though this is essentially every bank account in the country, the Treasury Department claimed it would only affect millionaires and billionaires. It grudgingly raised the threshold to $10,000, but the change lost half the expected revenue — showing that its proponents weren’t just eyeing the rich.
Those who know how the IRS operates can guess what the plan is, since the IRS does it now. IRS officials collect mountains of data from employers, contractors, and financial institutions and feed them into the IRS computer. Any discrepancy automatically generates a letter sent to taxpayers, tens of millions a year.
I’ve worked with many taxpayers who have received such letters, with the ominous IRS logo in the upper-left corner. The letter states that the IRS has identified a discrepancy and concluded that you are guilty. You can either pay immediately or send in your explanation proving your innocence. Most pay.
This is how the IRS expects to magically turn $80 billion into $203 billion. The primary goal of IRS management is to feed more data into the computer to send more automated letters to frighten payments from taxpayers, guilty or not. IRS officials actually expect to be more successful: The Biden administration originally predicted a fantastic windfall of $700 billion from the $80 billion in funding. The Congressional Budget Office knocked this number down as unrealistic, but administration supporters are still saying more money is out there if we just take the leash off the IRS.
Contrary to claims that the agency is half-starved or hollowed out, its budget has stood between $12.5 billion and $14.5 billion a year in current dollars for the past decade. It is true that the IRS is woefully inefficient. Examples of that abound: Dozens of tractor-trailers sat outside the IRS main processing facility in Ogden, Utah, for months last year, containing tens of millions of unprocessed tax returns. Today the IRS is seven months behind on opening mail, only answers 11 percent of the calls it gets, and takes 350 days to respond to taxpayers reporting urgent identify theft.
However, these shortcomings are due to misallocation of resources, not insufficient money. The IRS has an enforcement-only mindset, viewing all taxpayers as cheats who deserve the full power of the agency used against them. To IRS personnel, there is no such thing as an honest mistake or taxpayers doing their best to navigate a confusing and often ambiguous tax code.
What else explains why the IRS refuses to adopt tax-return barcode technology already used by state tax agencies, which would cut millions of hours of error-prone keyboard entry by IRS employees? Why else would the IRS ignore the Treasury inspector general’s suggestion that it buy machines to catch paper checks in the mail, spending a million dollars to save $56 million in interest?
Some things would cost money. Instead of telling taxpayers to mail or call the IRS (and then not opening the mail or answering the phone), the IRS could use now-widespread tools for electronic communication such as email, text chat, digital-attachment uploads, and online accounts where taxpayers could view documents, access services, and seek customer support.
The IRS could agree to let mediation resolve disputes, instead of demanding that taxpayers take everything through their one-sided appeals process and expensive court filings. The agency could get serious about explaining exactly what triggers enforcement, instead of waiting for taxpayers to pick wrong on laws that can be read multiple ways. Congress could radically simplify the tax code, eliminating the complexity that produces the need for a monstrous IRS.
It’s obvious where this $80 billion to the IRS idea will end because the cycle has played out before. First, politicians eager for easy money let the IRS run amok. The IRS promises to focus on the rich, but then targets the middle class, since those taxpayers are more likely to pay and not fight back. Then, taxpayer outrage pressures Congress to rein in the IRS all over again.
We should just skip to that last part: an accountable IRS no more monstrous than any other service that consumers use. That just requires some imagination, not magic.