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Paying for IRS budget cuts

By Kay Bell · Bankrate.com
Thursday, October 27, 2011
Posted: 11 am ET

During the recession, most of us have learned to live on less. That situation soon might apply to the Internal Revenue Service, too.

Both the House and Senate Appropriations Committees, the panels that propose how much money federal operations get, want to cut the IRS budget. The House plan calls for the IRS to get $525 million less than it did last fiscal year. In the Senate, the cuts are around $650 million.

IRS Commissioner Doug Shulman naturally is fighting back. In a letter sent separately to each member of the Ways and Means and Senate Finance Committees, Shulman warns that reducing IRS funds might backfire.

Shulman makes three big points.

First, service to taxpayers will suffer. Some might ask how could it get any worse. The tax commish explains.

"Responses to taxpayers' letters (including taxpayers who have received a notice and are trying to resolve account issues) would be delayed up to 5 months," wrote Shulman. "Approximately half of the nation's taxpayers attempting to call the IRS would either be unable to get through or hang up in frustration."

Second, the IRS's ability to collect money, especially from those who are trying to illegally avoid their tax obligations, would be hampered.

The commissioner says IRS examination (that's the agency's term for what you and I know as an audit) of individuals and businesses and follow-up efforts to collect the unpaid taxes would likely drop between 5 percent and 8 percent.

And that crimp in collections leads to Shulman's third point: IRS budget cuts will increase the federal deficit. By a lot. Specifically by $4 billion.

"The IRS is unique in that it has a positive return on investment on the nation's treasury, collecting on average $2.5 trillion per year," wrote the commissioner. "Because our enforcement account is 92 percent labor expense, cutting the IRS budget by the contemplated levels would mean that front-line IRS staffing levels must be substantially reduced, leading to a measureable decrease of approximately $4 billion in revenue annually."

That $4 billion loss to the U.S. Treasury, Shulman points out, is seven times the amount that Representatives and Senators want to cut the IRS budget.

So does the IRS commissioner have a point? Is Congress being penny-wise and pound foolish? What do you want your lawmakers to do when it comes to the IRS budget?

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2 Comments
Dave Ross
December 21, 2011 at 9:21 am

92% of a 13.3 BILLION dollar budget is over 12 BILLION dollars.

William
October 28, 2011 at 9:26 am

Get rid of the entire IRS and establish a flat tax. Only a handful of Clerical employees would be necessary.
Think about how much savings would be without any IRS employees
since 92 % is Employeee expense.