With tax season approaching, my attention turns to the IRS. According to Wikipedia, “The Internal Revenue Service is the revenue service for the United States federal government, which is responsible for collecting taxes and administering the Internal Revenue Code, the main body of the federal statutory tax law.” The IRS was founded in 1862. As of 2019, the most recent date for which figures are available, it employed 74,454 people and had a budget of $11.303 billion.
The IRS is best known for its failings. It is slow in processing tax returns and unresponsive to taxpayers. Every year it seems to get worse. That’s because Congress keeps reducing its budget. In 2010, the IRS budget was $14 billion. That was reduced to $12 billion in 2017 and to $11.3 billion in 2019. The chronic underfunding of the IRS poses one of the most significant long-term risks to tax administration today, including reduced revenue collection, impaired taxpayer rights, and greater taxpayer burden.
But while the IRS budget was being reduced, the taxpaying public it serves was enormous. In 2018, 144.3 million taxpayers reported earning $11.6 trillion in adjusted gross income and paid $1.5 trillion in individual income taxes. The population of the U.S.—and therefore its number of taxpayers—grows every year.
The result? Multiple problems according to a variety of sources. The IRS is unable to answer millions of taxpayer telephone calls; it is unable to timely process taxpayer correspondence; the “tax gap”—the amount of tax due but uncollected—stands at nearly $400 billion each year; taxpayers believe the tax laws are not being fairly enforced against others; and the federal budget deficit is unnecessarily large.
More next time.