The Corner

About Those IRS Budget Cuts

In the last few weeks, a bunch of stories have come out about how IRS budget cuts are responsible for the long lines at IRS offices, the agency’s lack of responsiveness on the phone, and its fundamentally terrible customer service. Here is the Washington Post last week:

Five years of budget cuts by Congress have left the agency so cash-strapped that Commissioner John Koskinen doesn’t bother sugarcoating the state of customer service. “It’s abysmal,” he said.

But has the IRS budget really been cut? Chris Edwards at the Cato Institute looks at the data and he finds that “taxpayer services” have indeed been cut, but the huge welfare handouts administered by the IRS have not. In fact, the portion of the IRS budget dedicated to such handouts has exploded. He has a good chart to buttress his point (reproduced above). As he explains it:

The chart shows that the IRS budget for handouts has skyrocketed (red line). The IRS has become a huge welfare agency. Handouts quadrupled from $30 billion in 2000 to an estimated $121 billion in 2015. Handouts have spiked the past two years because of Obamacare exchange subsidies of $13 billion in 2014 and an estimated $29 billion in 2015. (Data for 2015 are the president’s estimates).

How about IRS administration costs? They have been relatively flat (blue line). They grew from $8.4 billion in 2000 to a peak of $12.3 billion in 2011, and then they dipped to an estimated $11.3 billion in 2015.

However, there have been large changes within the IRS administration budget. Here are 2005 and 2015 spending figures for the three largest administrative areas: “taxpayer services” spending plunged from $3.9 billion to $2.2 billion, “enforcement” spending grew from $4.3 billion to $4.9 billion, and “operations support” spending soared from $1.5 billion to $3.9 billion. The latter category includes general IRS bureaucracy, such as management, facilities, and telecommunications costs. . . . 

The larger story is how the huge welfare system run by the IRS is dwarfing its traditional role of collecting taxes. In 2015, IRS spending on handouts of $121 billion is eleven times larger than the $11 billion spent on administration. In the recent federal budget, the White House requests a giant $45 billion for Obamacare exchange subsidies in 2016, which would be four times larger than total IRS administration costs.

The solution is simple. Congress should refocus the IRS’s attention toward its core mission of tax-collection and taxpayer-services, and away from the massive welfare operation it currently runs. That means enacting sweeping, fundamental tax reform.

Edwards’s piece is here. He says he will be happy to share his data if you email him at the address included at the bottom of his blog post.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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