In a day and age where there's never been more cynicism about the role of government, there is one federal department that is still trying hard to do its job - which, in this case, is collecting money - and that's the IRS.
Yet, as I've documented before, the department has been under siege of budgetary cuts. Over the past decade, the IRS has been gutted, and that's despite that fact that the department collects $4 for every $1 spent on their resources.
Some of the most recent slashes happened in the Consolidated Appropriations Act of 2014, where lawmakers cut the IRS's budget by more than $500 million. Another 2015 bill gave the Service about a $350 million budget setback. In the five years between 2010 and 2015, the IRS had its budget slashed by over $1 billion.
I recently spoke with Larry J. Brant, a Shareholder in the Tax & Benefits Group of Garvey Schubert Barer, a law firm based out of the Pacific Northwest, with offices in Seattle, Washington; Portland, Oregon; New York, New York; Washington, D.C.; and Beijing, China. He told me that, while Americans may not be quick to shed a tear for the IRS's plight, trimming the Service's budget has a major impact on everyone's day-to-day lives.
"The IRS's business is good for America. If we cut their resources, taxpayers will be faced with more cases of identity theft, and they'll receive worse customer service. The result is twofold -- (1) noncompliance -- both purposeful and non-purposeful will increase; and (2) tax collections will decrease. The ultimate result is the tax gap will continue to rise. In the end, that's not good for taxpayers; tax collections are our only revenue source for federal funding."
Brant warns that "several causalities" will result from further cuts, including the continued rise of the aforementioned tax gap, which is the amount of money that should have been paid in taxes on a timely basis but hasn't been.
"While it may not be debatable that the IRS and its use of resources needs increased oversight, cutting its resources does not seem like good business."
"The tax gap is currently $450 billion, a number that has steadily increased since 2001 when it stood at $150 billion, despite political rhetoric that there was action being taken to reduce it," he said. "So because of these cuts, we've seen approximately 300,000 fewer collections and far fewer audits each year. The audits that are happening are taking longer and longer, and that means less money in the Treasury, which truly does affect everyone."
So with a new administration at the helm, is there a change on the horizon? It is not clear. The trimming of the IRS's budget is continuing under the Trump administration, and Brant thinks it could be a mistake for a commander-in-chief who lists reducing the deficit as one of his primary goals for his time in office. "Increasing its budget, but providing better oversight relative to how the budget is spent may be a more appropriate approach."
"In the President's initial budget outline, he proposes to cut the IRS's already trimmed down 2018 budget by approximately $239 million from its 2017 budget," Brant said. "The President's rationale for the proposed cuts seems to be that the agency has not used its resources wisely, and that continued cuts will incentivize department leaders to improve their agency's efficiency. Given that the IRS is the only revenue-generating government agency at the federal level, cutting its budget seems to be akin to a sales-driven business cutting its sales force."
Will Americans ever truly warm up to the IRS? Probably not, unless the IRS changes its culture to focus on taxpayer education and service. Brant believes that taxpayers do want to comply with their obligations as long as they're treated fairly. Unfortunately, amid the budget cuts and their many side effects, such as handing tax collection over to private debt collectors, that's looking less likely to be the case.
"My belief is most taxpayers are willing to pay their fair share, but they want to understand the tax laws and they want to be treated fairly and respectfully. Taxpayers want the due process that the law accords them. There must be a balance of enforcement activity and customer service," Brant concluded. "If the IRS is well-funded, and taxpayers are treated with respect and provided a consistent level of good service, the system will work. Unfortunately, we're not trending in that direction."