The Internal Revenue Service building, Washington DC.
Ann Hermes/The Christian Science Monitor via Getty Images

The misguided, counterproductive campaign against the IRS

Much of the public probably isn’t fond of the Internal Revenue Service, and given that the agency is responsible for collecting taxes, it’s not too hard to understand why. So perhaps when congressional Republicans go after the IRS, the party isn’t especially concerned about a public backlash.
 
But it’s important to realize why recent efforts against the IRS are deeply problematic. First up is this change regarding non-profits.
Amid ongoing controversy over its scrutiny of nonprofits, the Internal Revenue Service has decided it will no longer screen approximately 80% of the organizations seeking tax-exempt charitable status each year, a change that will ease the creation of small charities while doing away with a review intended to counter fraud and prevent political and other noncharitable groups from misusing the tax code.
 
Gone are requirements that groups fill out a lengthy form and supply supporting documents; now groups can make a few declarations, pay a modest fee, and become a charitable non-profit.
We know why, of course, such streamlining became politically necessary – Republicans manufactured a “scandal” involving the IRS allegedly “targeting” conservative non-profits. The controversy was largely a mirage, but the blowback from the right was so intense, the IRS appears to have decided to pull back considerably.
 
Won’t this invite abuse, with political groups claiming tax-exempt status that wouldn’t otherwise qualify? Of course it will. But with congressional Republicans having successfully badgered the agency, this is the result.
 
“What we’ll see is the so-called dark political money that flowed into the (c)(4) world is going to begin to flow into the (c)(3) world,” said Marcus Owens, the former director of the exempt-organizations division at the IRS.
 
But in the larger context, this probably isn’t the worst news for the IRS this week.
 
The House late Monday night adopted proposals by voice vote to cut funding for the Internal Revenue Service.
 
Rep. Paul Gosar’s (R-Ariz.) amendment to the fiscal 2015 Financial Services appropriations bill would cut funding for the IRS by $353 million. Specifically, Gosar’s amendment would cut that funding from the IRS enforcement account and use it toward deficit reduction.
Look, I realize we’ll never see an organized “Leave the IRS Alone!” campaign, but punishing the tax agency with another spending cut isn’t just ridiculous; it’s also likely to cost the nation dearly.
 
Since Republicans took over the House in 2011, the IRS’s budget has already been cut deeply, “leading to sharply reduced staff, less enforcement of the tax laws and poor taxpayer service.” The new response from far-right lawmakers is to make matters worse, on purpose, in part because of a “scandal” that’s largely imaginary.
 
The policy consequences are real.
As the economist Jared Bernstein noted recently in The Washington Post, a weakened I.R.S. enforcement staff will be unable to make a dent in the $385 billion annual gap between what taxpayers owe and what they pay – an unintended tax cut, mostly for the rich, that represents 11 percent of this year’s spending. […]
 
But it is bad news for building roads, keeping the air clean, protecting the nation’s security, and countless other vital government tasks. Revenue collected by I.R.S. enforcement actions has fallen by more than $4 billion over the last four years, according to a new report from the Center on Budget and Policy Priorities. And every dollar spent on enforcement yields $6 in additional revenue. Many I.R.S. computers use obsolete Windows XP operating systems and cannot keep up with a growing problem of identity theft that is directing refunds to criminals.
I’ve seen some GOP lawmakers struggle with the logic: how can cutting spending cost more money? The answer requires a little bit of thought, but it’s really not that complicated.
 
Have folks heard the phrase “Penny wise, pound foolish”? As we’ve discussed before, if we cut spending on volcano monitoring and tsunami warnings, we save a little money on maintenance, but pay a lot of money on damage repairs after disaster strikes. If we cut spending on food safety, we save a little money on inspection, but pay a lot of money on health care costs when consumers get sick. If we cut spending for the Securities and Exchange Commission, we save a little money on enforcement, but pay a lot of money to clean up financial catastrophes.
 
And if we cut the IRS’s budget, we save a little money on administrative costs in the short term, but we lose out on a lot more money needed to fund the government and pay our debts in the long term.
 
The Republican approach isn’t fiscally responsible; it’s the opposite.
 

IRS and Tax Policy

The misguided, counterproductive campaign against the IRS