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Monday, August 14, 2023

Foolishness, hypocrisy, the GOP and the IRS

If you care about national debt, de-funding the IRS is the dumbest thing you can do 

By Gerald E. Scorse 

Take your pick from two definitions of modern-day Republicans: foolish hypocrites or hypocritical fools. When it comes to America’s $32 trillion federal deficit, each one is as fitting as the other. They’re hypocrites for saying one thing and doing another. They’re fools because the actions they take are driving the deficit ever higher.  

Let’s listen to the words Republicans mouth. Let’s look at the laws they pass and propose. Let’s zero in on their special ways of spending—and spurning—tax dollars.   

Off we go, into a world of debt created by the party that claims to be concerned about debt. 

Just a couple months back, House Speaker Kevin McCarthy and the GOP created a debt ceiling crisis. McCarthy and President Biden ultimately forged an agreement to avoid a U.S. default, but it didn’t impress Republican presidential candidate Ron DeSantis. “After this deal,” DeSantis warned, “our country will still be careening toward bankruptcy.” 

Not two weeks later, the GOP-led House was doing everything it could to turn DeSantis into a prophet. With classic hypocrisy, it “released a plan that would slash taxes for corporations and the wealthy” and cost the government $240 billion over the next decade. With classic foolishness, it went all out to cut double-digit billions from Biden’s long-term funding for the Internal Revenue Service (IRS). Altogether, via three separate cuts, the GOP proposed slashing more than $21 billion from the IRS allocation. 

Surprise, surprise: Short-changing America’s tax collection agency won’t save a penny. In fact, it’ll likely cost about $120 billion. 

It’s simple arithmetic: In fiscal 2022, “the IRS collected $72.4 billion through enforcement programs, a return on investment (ROI) of about $6 to $1.” The real ROI is almost certain to be greater, since the $6 to $1 ratio doesn’t include the deterrence effect—the additional billions that come in because audit-fearing taxpayers file more honest returns. 

Republicans actually delight in starving the IRS. Here’s Rep. Dave Joyce, an Ohio representative, making GOP happy talk a while back: “I know that when we were in the majority [from 2010 – 2018] …we took great pleasure in cutting the amount of money that was going to the IRS every year.” 

They’re in the majority again, taking great pleasure again, and their foolishness has become more costly than ever. A new paper by tax experts and former Treasury officials Natasha Sarin and Mark J. Mazur addressed the ever-higher costs and what keeps pushing them up. 

As the authors point out, “about 15% of the taxes that are owed are not voluntarily remitted and ultimately not collected.” That’s led to an annual tax gap of $600 billion—a gap that directly reflects the gutting of IRS budgets. Audit rates have been declining every year since 2010, the agency is operating with 22 percent fewer people, and it’s been forced to stick with outmoded systems and equipment. 

It’s plain common sense that more money for the IRS can cut that $600 billion gap. It’s especially true when the audits focus on high-income taxpayers. 

The agency’s return of $6 for every $1 spent, cited earlier, was an overall figure. According to a study published just last month, “an additional $1 spent auditing taxpayers above the 90th percentile [i.e., the top 10 percent] yields more than $12 in revenue.” Audits of high-income taxpayers do cost more money, “but the additional revenue more than offsets the costs.” 

The 12:1 return includes the deterrence effect, and it’s humongous: deterrence raises an estimated three times as much revenue from high-income taxpayers as the initial audits. 

Getting back to the federal deficit, the GOP is far from alone in its hawkishness. The latest long-term projections from the nonpartisan Congressional Budget Office (CBO) “reveal deep structural problems….that will keep the debt on an unsustainable path and diminish the opportunities and choices of future generations.” 

Republicans, though, are in a class all by themselves at minimizing federal revenues. They expand the deficit by penny-pinching the IRS. They cost the Treasury trillions with tax cuts for people who don’t need them. They resist and vote down every Democratic effort to make the rich pay “their fair share”. 

All of which makes them hypocritical fools or foolish hypocrites: take your pick. 

Addendum: Newly-released figures underscore the folly of playing politics with IRS budgets. The agency collected $38 million in unpaid taxes from certain high-income taxpayers in the past few months, an average of roughly $215,000 per case. The revenue came in through an initiative paid for with the first infusion of new agency funding. “It just shows you,” said IRS Commissioner Daniel Werfel, “how much money is out there in delinquent taxes.”