IRS

Should We Be Upset If the IRS Has Been 'Gutted'?

A new report from ProPublica whitewashes the IRS, while ignoring the positive benefits of tax evasion.

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Kris Tripplaar/Sipa USA/Newscom

Budget cuts at the Internal Revenue Service (IRS) have stretched the agency's resources thin, limiting the audits it's able to perform, and costing the government billions of dollars every year, according to a new investigation from ProPublica that should make any libertarian smile.

On Tuesday, the investigative journalism outlet, in partnership with The Atlantic, released a deep dive into the troubles at the IRS, finding that the taxman has seen his budget shrink by some $2 billion since 2010, with the number of auditors falling by about a third, and the rate of audits declining by 42 percent.

"The result is a bureaucracy on life support and tens of billions in lost government revenue," reads the story, which estimates that the U.S. Treasury is losing out on about $18 billion a year thanks to scaled back enforcement.

If you believe that paying taxes is a moral obligation, and anything less than 100 percent compliance is unacceptable, the story is likely to be shocking. If you don't, it's hard to get worked up about much of anything in the article.

One big reason why is that ProPublica fails to identify what, if any, effect a scaled back IRS actually has had on wider government operations.

For starters, the amount of money estimated to slip through Uncle Sam's fingers each year is sizable, but still a relatively small sum when compared to the total amount of government spending. That $18 billion (roughly NASA's annual budget) amounts to about 0.5 percent of the $3.3 trillion in taxes that the government collected this year, and about 2 percent of fiscal year 2018's $779 billion budget deficit.

One might complain that wealthy tax cheats are benefitting at the expense of the beneficiaries of government programs starved of funds. But the fact is that the absence of that $18 billion has not resulted in cuts to federal spending.

Indeed, in the years since the IRS has been "gutted," federal spending has gone nowhere but up. Fiscal year 2018 saw the federal government appropriate $4.1 trillion, a 3 percent hike from the previous year. That spending hike included an annual defense spending increase of $83 billion, and another $60 billion in increased non-defense discretionary spending.

To be sure, more money lost to tax evasion mixed with rising spending does mean the federal government will take on more debt each year, but the costs of more federal debt must be balanced against tax evasion's positive benefits.

After all, whatever money is lost due to tax evasion doesn't just disappear. Instead, it stays with the businesses and workers who found new and innovative ways of underpaying their taxes. Each dollar they don't send to the government can be saved, invested, or spent on goods and services in the private sector, not on bombs, border guards, and light rail.

Economist Pierre Lemieux has even argued that tax dodgers actually provide a service to their fellow citizens by reducing the take from a tax increase which in turn disincentivizes the government from trying to raise taxes beyond a certain point.

"Tax evasion and avoidance provide a built-in brake on Leviathan's expansion," wrote Lemieux in a 2015 blog post. "Tax dodging reduces and eventually eliminates the state's capacity to increase its revenues. Thus, it removes incentives to further exploit taxpayers and prevents everybody's tax burden from being pushed higher."

ProPublica's story also largely ignores or downplays numerous IRS scandals that should make anyone leery of giving the agency more money or power.

High-profile scandals like the IRS's targeting of conservative non-profits or its lavish conference spending are brushed off as mostly public relations slip-ups for whom the real victim was the agency itself. Not getting any mention is the IRS's more numerous, less well-known abuses of citizens and their property.

The ProPublica article, for instance, includes a sympathetic portrait of former IRS employee Pam Reicks, who for many years worked auditing businesses out of the agency's Des Moines, Iowam office before ultimately leaving due to frustration with the budget cuts. Not mentioned is Reicks' colleague at the IRS's Davenport, Iowa, office, Christopher Adkins, who in 2013 seized $33,000 straight out of the bank account of Carole Hinders—an Iowa restaurant owner—he suspected only of structuring (that's when a person makes deposits under $10,000 with the alleged intent of avoiding tax reporting requirements).

Hinders' is one of many cases where the IRS used civil asset forfeiture to go after business owners and individuals who stood accused of no crime other than structuring. (The IRS mericfully ended this practice in 2015.)

By ignoring these kinds of stories, ProPublica essentially whitewashes the IRS, depicting it as an agency of principled civil servants, not as an outfit whose mixed record includes some serious property rights abuses.

In short, if one believes that there is a moral obligation to pay taxes, then tax cheats getting away with their crimes is serious business. If one thinks that there're efficiency gains from more money staying in the hands of the people who earned it, or that coercive taxation is itself morally problematic, then we should cheer tax evaders and welcome the IRS's reduced capacity to go after them.

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  1. go, Tax Cheats! repeal the 16th.

  2. A “bureaucracy on life support” sounds like the best news I’ll hear all day. Even better that it’s the IRS.

    1. “So pull the plug already.”

  3. For all the angst, we have yet to hear a repentant tone from the IRS for going after political opponents and allowing the White House to weaponize them. They decided to play politics, and they lost. The IRS can enjoy a few more years in the wilderness, and when President Inslee comes to you in 2023 and tells you to go after c4’s that support Team Red, hopefully they will remember these cuts and tell him to go pound sand.

  4. I don’t think they’ve made a violin small enough for me to properly express my feelings about the poor IRS.

  5. Gutting the IRS?
    What fascist pig thought this one up?
    The IRS is one of the most important secret police agencies we have.
    They can confiscate and seize property before the suspect goes to trial which is fair and just.
    They believe your property is their property.
    They believe in the sanctity of power over the powerless, they correctly only take on people who can’t afford lawyers and avoid auditing and seizing the property of the most powerful among us.
    What more could you ask for from a government agency?

    1. This is ridiculous.

    2. That it self-destruct?

  6. The ProPublica article, for instance, includes a sympathetic portrait of former IRS employee Pam Reicks, who for many years worked auditing businesses out of the agency’s Des Moines, Iowam [sic] office before ultimately leaving due to frustration with the budget cuts.

    My heart aches for all those poor, poor property expropriators.

  7. I am surprised the Feds do not do more to fund the agency. You would think, as the primary revenue collector of the Federal government, that keeping the taxman bankrolled and well staffed would be a priority for all those spendthrifts in Congress.

  8. In short, if one believes that there is a moral obligation to pay taxes, then tax cheats getting away with their crimes is serious business.

    You should better believe it! How else is DJT gonna get the money for that wall that Mexico stoopid Americans are going to pay?

  9. Gee maybe allowing your agency to be co-opted into a partisan weapon that was used to go after the party that controls Congress and your budget was a bad idea? Who knew?

  10. the absence of that $18 billion has not resulted in cuts to federal spending.

    Then apparently the federal government does not actually need that money.

  11. A new report from ProPublica whitewashes the IRS, while ignoring the positive benefits of tax evasion.

    B-b-but… taxes are the “price we pay for civilization. WHY DO YOU HATE CIVILIZATION!?

    1. The government solves collective action problems. Trying to pretend life in the modern age would be possible without some form of government to bridge our collective action problems is laughable in the extreme. They also act as an arbiter for problems to keep people from settling scores with blood and protect property rights. I would think things like this would be important to a libertarian. Taxes are the price we pay to fund these vital services we all utilize.

      1. …plus funding the national debt, helping foreign countries run their affairs and kill other foreigners, usurp states’ drug policies, pay out ponzi-scheme social programs, and so much more vital stuff!

  12. The most comprehensive report on the matter, the September 28, 2017 Treasury Inspector General for Tax Administration Report titled “Review of Selected Criteria Used to Identify Tax-Exempt Applications for Review” concluded that left learning groups (in addition to the right leaning groups identified in the 2013 TIGTA Report) were also inappropriately identified for scrutiny based on their names rather than on actual evidence of illicit political activity that would leave them ineligible for tax exemptions.

  13. I have it on good authority that not enough tax collection is why the deficit is out of control.

    1. You were told that by the taxers, or the spenders?

  14. What this article misses is that the parts of IRS being gutted the most are customer service functions, including the people who answer their phones and even the Taxpayer Advocate’s office. An IRS with major parts of those functions cut is going to make it a lot more difficult for people who already have trouble dealing with the system to get their cases straightened out.

    1. ^^This^^

      The defunding of the IRS is being done by Republicans, with the goal of making the Service less responsive to taxpayer questions and problems, and causing taxpayers to have a bad opinion of it.

      This’d be OK if the Republicans were also reducing taxes, but…

      1. oh Jerry, the Republicans DID reduce taxes. I am sure your problem is you never made enough to PAY income taxes and therefore did not see a reduction in them.

    2. If that “service” had any defensible record of giving accurate advice to taxpayers, they probably would have survived intact.

      1. This! But the root cause is that Congress wrote confusing, if not self-contradictory, tax laws and left the IRS to figure out the mess. All too often the real answer is, “It depends on how your auditor is feeling.”

  15. It’s not tax evasion if done properly. Tens, hundreds of thousands of educated Americans receive full refunds of all receipts withheld under the universal withholding laws for the possibility (however remote) that the receipts constitute gross income or statutory wages . Educated Americans file the correct 1040 forms that correspond to the answer Milton Friedman received at a Congressional hearing about the new withholding program he had helped design. Friedman asked the Congressional panel what recourse a non taxpayer has under universal withholding? Congress replied they could file a return and receive a refund.
    It’s not tax evasion to realize either a general tax on all incomes must be an unapportioned direct tax or if not it is an excise tax. The Supreme Ct has ruled numerous times the 16th Amendment did not authorize a new kind of tax, but rather affirmed the taxing clauses in US Constitution. Income taxes are excises. Excise taxes are laid on the manufacture and sale of certain commodities and on privileged activities that the federal government creates, or exists through federal permission. Working for a living in the common occupations of life to support yourselves and your family is a right, not a federal privilege.
    This is not tax evasion. Filing educated returns claiming a complete, rather than partial refund of withholdings is upholding the law. http://Www.losthorizons.com

  16. “…a bureaucracy on life support…”
    Just pull the plug and kill it.

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