Tax Analysts Blog

Tight Budgets: Time to Expand or Contract the IRS?

Posted on Feb 8, 2011

In this morning's New York Times you can read how Wall Street is lobbying against SEC budget cuts.Yes, regulated industries well understand that a poorly funded regulator can be as dangerous and as insensitive to your needs as a wounded bear.

You see a lot of the same thing in the tax world. Practitioners--many former IRS officials themselves--understand that a poorly funded IRS does not help the public. Overworked staff cannot provide service. Overburdened auditors can be arbitrary and defensive in their judgements. Of course in the primitive parts of our brains we could live in a world without the IRS. But adults know better.

We also know that cutting the IRS budget reduces tax collections. The exact numbers are disputed, but few experts disagree that investments in enforcement pay off in revenue increases many times the cost of the original investment.

For all these reasons experts in tax administration and the IRS Oversight Board have repeatedly called for larger IRS budgets. Next Monday the President will release his budget and soon afterward Congress will start getting specific about where it will cut spending. In all the hubub, the important issue of the IRS budgeting can get lost. But the government has to make a fundamental decision about how its tax collection agency should adapt to a new era of tight budgets. Let's hope our leaders don't move in the wrong direction.

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