Why The IRS Doesn’t Deserve A Bigger Budget

Alexander Hendrie Americans for Tax Reform
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The IRS is pleading poverty. Commissioner John Koskinen claims that under current funding levels, the agency will be forced to not answer the phone, to send out refunds more slowly, and to even shut down for several days over the coming year.

The agency says it is “struggling to keep the lights on,” however its record of allocating taxpayer resources has ranged from poor to abysmal. According to the recently released National Taxpayer Advocate’s Annual Report to Congress, the IRS has failed to properly prioritize past budget decisions. As the report states:

“The IRS lacks a principled basis for making the difficult resource allocation decisions necessitated by today’s tight budget environment.”

This has not stopped the IRS from asking Congress for almost $2 billion in new funding. But lack of money is not the reason for the agency’s current predicament. The IRS has never bothered to use available data to evaluate the merits of spending decisions. As the report explains:

“While IRS collected some data that it could use to evaluate effectiveness, it did not develop plans to analyze the data or track it in a way that would allow officials to draw causal connections and develop valid conclusions about the effectiveness of its 2014 service changes.”

Despite these findings, the IRS continues to claim it has spent its funding efficiently. In congressional testimony early this month, Koskinen said, “The IRS has for several years been working hard to reduce costs and find efficiencies in our operations.”

The NTA and the Treasury Inspector General for Tax Administration disagree. The IRS has not even attempted to properly ensure that scarce taxpayer funds are allocated effectively and is unable to justify its decisions. As the report notes:

 “the IRS has come under scrutiny by external oversight organizations who have questioned the IRS’s rationale for its budget decisions. They have not been satisfied with the IRS’s response to their inquiries.”

The IRS failed to properly prioritize funding even when budgetary pressure did not exist. In 1998, Congress passed legislation requiring the IRS compile annual reports on ways to reduce the complexity of the tax code, using data that is available only to the agency. However, the agency has not produced a single report on tax complexity since 2002, even though its refusal to do so means it is breaking the law.

When asked by the NTA to explain why these reports have not been compiled, the IRS said it would require “about two full time employees working for about a year” to produce the report. The IRS has 82,982 full time employees, so it is hard to believe that the agency cannot find two employees to carry out this important work.

In fact, the agency’s refusal to produce these reports is making its own job much more difficult. The two years that the agency produced these reports — 2000 and 2002 — helped the IRS and Congress to “identify and address key problem areas.” The cost of producing these reports is negligible compared to the money that would be saved from making the tax code less complex. As the report states:

“While the IRS would need to spend some resources to produce the complexity report, these costs pale in comparison to the costs of complexity. Moreover, if they prompt a reduction in tax complexity, the reports might ultimately help the IRS do its job and reduce the cost of administering the tax code.”

If that were not bad enough, Koskinen admitted last week that the IRS still has applications in use from when John F. Kennedy was president, 52 years ago. Moreover, the programming language the IRS uses – COBOL – was considered outdated in 2000 and today “it is extremely difficult to find IT experts who are versed in this language.”

While the IRS claims its funding is dangerously low, an analysis by Cato Institute economist Dan Mitchell, shows the IRS’s budget has doubled in the past 30 years, even after adjusting for inflation. Although its funding has declined since 2010, current funding remains higher than mid 2000s levels. Given the agency’s history of inept spending choices, it should not even think about asking for any more taxpayer dollars until it can properly justify its spending.

With several major Obamacare taxes including the employer mandate and individual mandate set to kick in this year, the current tax season will be one of the most chaotic ever. The agency’s poor performance and endless excuses do not inspire confidence.

Alexander Hendrie is a Federal Affairs Associate at Americans for Tax Reform and its affiliate, Property Rights Alliance (PRA). He focuses on tax, fiscal and, trade policy issues. At PRA he works to advocate for the protection of physical and intellectual property rights, both domestically and internationally.