‘Completely unworkable,” “irresponsible,” “happy talk,” “a disservice to the political process.” That’s just a sampling of what tax experts, most of them right of center, told me they think of one of the most popular lines from Ted Cruz’s stump speech, his promise that a President Cruz would abolish the Internal Revenue Service.
Senator Cruz has been talking about the idea for a couple of years now, but it got a bit more attention when he mentioned it in the speech he gave at Liberty University to officially launch his presidential campaign. The basic idea, according to his speeches and a conversation I had with a Cruz adviser, is this: If you radically simplify the individual-income-tax code, you can reduce the size of the federal tax-collection bureaucracy so much that you could then get rid of the IRS and disperse its functions across other agencies.
This is a great applause line: Americans hate how complicated their taxes are, and they hate the IRS. It’s such a good line, in fact, that other probable presidential candidates, such as Senator Rand Paul and neurosurgeon Ben Carson, have adopted it too.
The problem: The idea probably isn’t feasible and has almost no merits as a public policy.
There is no doubt that an individual-income-tax code with many fewer deductions and credits — Cruz has suggested, for instance, keeping only the mortgage-interest deduction and an incentive for charitable giving — would be easier to enforce and therefore require fewer IRS agents. (A flat tax per se would not necessarily be easier to administer than a progressive one with many rates but few deductions and credits. Everyone can read tax tables.)
But tax experts say that, while the federal revenue agency could shrink under Cruz’s proposal, it could only get marginally smaller — not nearly small enough to say it’s been “abolished.” “You’d need slightly fewer revenue agents to conduct the same number of audits,” for instance, says Alan Viard, of the American Enterprise Institute. Donald Marron, a Bush-administration veteran and former head of the widely respected Tax Policy Center, says an idea like Cruz’s could make the IRS “smaller, sure. But vastly smaller? Probably not.”
That’s partly because the IRS does a lot of things besides just process complicated individual tax returns. Much of its resources, for instance, go into enforcing the corporate tax code, which Cruz’s campaign says he doesn’t have plans for yet. Meanwhile, a lot of IRS agents — quite possibly not enough — are assigned to providing customer service to taxpayers. And while conservatives are rightly wary of the civil-liberties violations that tax enforcers can commit, labor-intensive audits are important. If a lot of income goes unreported or taxes go uncollected, trust in the system breaks down, rates have to be higher, and the economy ails.
Unless we have a different kind of radical tax reform, such as replacing the income tax with a state-administered sales tax (Cruz has flirted with an idea like this but isn’t pushing it now; it has its own problems), the federal government is still going to have a huge tax-collection bureaucracy.
In an interview, though, the Cruz adviser assures me that the senator means what he says: A Cruz administration will dismantle the IRS and distribute the remaining responsibilities across the rest of the federal government. “If [tax reform is] done correctly under a Cruz administration, there would be no need for the IRS,” the adviser says. “The remaining responsibilities for collecting tax revenue would be dispersed throughout existing agencies.”
So the federal government wouldn’t end up with many fewer tax collectors, but they’d be working for different agencies. Can we do that — ditch the IRS itself for a different set of tax collectors, either in a new agency or in existing federal offices? Yes, we can, but it’s not clear why it’s a good idea, except that it sounds great on the stump.
Most explicit on this point is someone who would know best: Mark Everson, who served as IRS commissioner under George W. Bush, and actually happens to be running for president too. The idea of distributing the IRS’s functions across the federal government, he says, “doesn’t reflect any real familiarity with how the tax code works, what the responsibilities of the IRS are, or frankly how to manage the government.” Breaking up the tax agency “makes no sense” and would make tax enforcement nearly impossible, he says, because of how poorly federal agencies work with one another. “It’s hard enough to coordinate within the IRS, let alone if you have different agencies involved,” he says.
In fact, while IRS discrimination under the Obama administration against conservative political nonprofits has only increased the contempt many Americans have for the agency, the IRS does a fairly good job of collecting taxes and has relatively few scandals in its history. (A number of them can be blamed on the White House or the FBI, not the agency itself.) “If you pin down, if you put a lie detector on people who have been critics of the IRS, like [Republican senator] Chuck Grassley, they would admit the IRS is one of the better-performing federal agencies,” says James Wetzler, a left-of-center tax lawyer who spent more than a decade at the Joint Committee on Taxation and served on a commission to reform the IRS in the 1990s. This is not the highest praise; the IRS regularly fails to meet transparency requirements, for instance. But it does manage to do the job it sets out to do at a relatively reasonable cost, Wetzler says, which is enough to outshine other federal bureaucracies.
Not everyone agrees with that positive assessment. Chris Edwards, director of tax studies at the Cato Institute, says the IRS is “a typical bad federal agency.” But there’s definitely some evidence of its efficiency: The United States’ “tax gap,” the difference between taxes owed and taxes collected, compares well with those of other countries, and the IRS is well regarded internationally. Congress chose to task the IRS with the implementation of Obamacare, Everson points out, because the other available agencies are considered less capable.
When I spoke with the Cruz campaign, they didn’t even attempt to make a case for abolishing the agency. Cruz is “not going to get rid of one bureaucracy only to create another,” the adviser says (other, existing bureaucracies would have to get bigger, it goes unsaid). When pressed about why dispersing IRS functions across other parts of government would be an improvement, he offered no clear justification. “It will be vastly more efficient to put the people who are doing jobs that still need to be done into agencies that have existing infrastructure” for similar purposes, the adviser said, without offering any reason why that would be “vastly more efficient” than the current situation. I also asked whether the idea is that, in light of the nonprofit-targeting scandal, the agency is so corrupt that it has to be dismantled; I didn’t get an answer.
Many Americans surely do just want to end the IRS, period. They don’t need any convincing. But one would hope for a little more seriousness from a presidential campaign — an explanation of why doing this should be a key priority in the important task of tax reform.
Some moves toward a better, more pro-growth tax system could actually mean more federal employees, not fewer. Republican tax plans, for instance, generally propose moving to what’s called a territorial tax system, ending the taxation of income American citizens and companies earn abroad. That would require new IRS resources, AEI’s Viard says, to make sure that companies don’t exploit this change to evade taxation. Taxing employment benefits such as health insurance just as wages are taxed, usually a conservative priority, could also mean more IRS work, because the value of those benefits has to be assessed. Plenty of ways of making taxes easier to file, such as offering the option of pre-filled tax forms, would free up businesses’ and individuals’ time and money for productive purposes, but would probably require more IRS employees, too.
Tax experts agree that the main problem with America’s tax system is the Congress that wrote it, not the agency that administers it. That is where serious tax-reform efforts should be focused.
Cruz has months to flesh out his stump speech with a broader policy agenda. The implausibility of one of his favorite campaign promises, though, is not a heartening sign.