Is more money the answer to “pitiful” IRS service? That’s what Taxpayer Advocate Nina Olson believes, based on a story by Tax Analysts ($link):
National Taxpayer Advocate Nina Olson in a November 9 speech decried as pitiful the level of IRS customer service given to taxpayers, which she attributed to inadequate funding that has forced the Service to automate many of the most important tax administration functions and skimp on training employees on taxpayer rights.
Everything else being equal, you can do more with more money. Yet we all face limits to our resources, so we prioritize. The IRS — at the urging of Nina Olson — has directed resources unwisely to its misguided attempt to boss the tax prep industry. It has been a debacle so far, and it appears headed to oblivion in the courts.
The IRS has another administrative problem that the Taxpayer Advocate has pointed out. The tax law is too complicated to effectively administer even with a much larger budget. The tax law is seen as the Swiss Army Knife of public policy, and like a knife with too many gadgets, it becomes hard to work as a knife. This chart from Chris Edwards at the Cato Institute illustrates the problem:
Chris Edwards explains:
The chart shows that the IRS has become a huge social welfare agency in recent decades. Handouts have soared from $4.4 billion in 1990 to an estimated $91.1 billion in 2013 (red line). Handouts are down a bit in recent years because some of the refundable credits from “stimulus” legislation have expired. IRS administration costs have grown from $7.7 billion in 1990 to an estimated $15.3 billion in 2013 (blue line).
How should we reform the IRS budget? First, we should terminate the handout programs. That would save taxpayers more than $90 billion annually and cut the IRS budget by 86 percent.
The largest IRS handout is the refundable part of the EITC, which is expected to cost $55 billion in 2013.
So true. Considering that over $10 billion of the $55 billion is stolen or otherwise issued improperly, the EITC is a nightmare. There would be plenty of funding available for tax administration if EITC could go away.
But the chart also shows something else: if the tax law was no more complicated than it was in 1990 — and believe me, it was plenty complicated — the IRS administrative budget would be adequate. But with the IRS transformed into a monster multi-portfolio agency charged with healthcare administration, welfare, industrial policy, environmental enforcement, etc., etc., its budget is hopeless.
This will work out well:
This article examines the tax collection process to see how the IRS might enforce the individual mandate under the healthcare reform law. It concludes that resistant taxpayers can generally be forced to pay the tax penalty only if they are entitled to receive refundable tax credits that exceed their net federal tax liability.
From Jordan Berry, The Not-So-Mandatory Individual Mandate, via the TaxProf.
Don’t trust the Tax Foundation? Maybe you’ll trust the Congressional Budget Office. A commenter yesterday took issue with a chart I reproduced showing not only the tax burden at different income levels, but the amount of government spending benefiting different income levels:
It’s not “the first chart for any tax policy debate,” it’s the last chart you should want to find on your side of the debate if you want to have any credibility.
If that doesn’t work for you, maybe this one from the CBO will be less objectionable:
Scott Hodge, Andrew Lundeen, 54 Million Federal Tax Returns Had No Income Tax Liability in 2011 (Tax Policy Blog)
Paul Neiffer, Sale of CRP Land – Is it Subject to the 3.8% Tax? It depends a lot on whether an appeals court upholds the Tax Court Morehouse decision imposing self-employment tax on CRP income. “And if the Morehouse case is overturned on appeal and the CRP is treated as rents, the land sale will also be subject to the 3.8% tax.”
Leslie Book, Disclosure and the 6-Year Statute of Limitation: S Corp Issues (Procedurally Taxing)
Jason Dinesen, EAs are Partly to Blame for Our Obscurity “Yes, we are treated as the red-headed stepchild of the tax world. But a big reason for this is that we ALLOW people to treat us this way.”
TaxProf, The IRS Scandal, Day 188
“It’s Time to Give Up on Tax Reform” – Joseph Thorndike, October 29, 2013
“When Tax Reform Rises From the Dead, What Will It Look Like?” Joseph Thorndike, November 12, 2013.
I should note that his vision of resurrected tax reform is hideous. If that’s what hope for tax reform comes to, I’ll hope against his hope.
Tags: tax policy, tax administration, Kay Bell, greg mankiw, Joseph Thorndike, Nina Olson, Paul Neiffer, Obamacare, Jack Townsend, Scott Hodge, Jason Dinesen, EITC, Enrolled Agents, ACA, Andrew Lundeen, Leslie Book, TaxProf. Jordan Berry, Chris Edwards