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The taxman should cometh

Every year the IRS collects data on "the tax gap." The tax gap is the difference between the taxes the agency knows it's owed and the taxes the agency has actually been paid. In fiscal 2008, the tax gap was $345 billion. That's about 14 percent of the total taxes collected that year. And you know who makes up that shortfall: those of us who didn't dodge our taxes.

As long as we're going to have a tax system, we may as well make sure we're all paying our share. But the GOP has conducted a long campaign to defang the IRS's ability to do that. In the late '90s, the Republican-controlled Senate Finance Committee held a series of dramatic hearings in which individuals sat behind screens and haltingly, tearfully, told stories of IRS persecution. Some of the stories featured genuine misdeeds. Others fell apart upon later examination (Robert McIntyre, the director of Citizens for Tax Justice, remembers one in particular where it turned out the witness was living off his employee's payroll taxes).

But the trials worked to demonize the IRS. The result was the IRS Restructuring and Reform Act of 1998, which made enforcement more difficult and began a long cut in the IRS's collection resources.

A report released by Citizens for Tax Justice shows that between 1995 and 2005, the IRS's budget was slashed by a fifth. Between 1995 and 2003, its enforcement division lost 36 percent of its staff. They were barred from conducting research on tax evasion, which meant they lost the ability to keep up with new tricks that accountants had discovered to game the tax code. More bizarrely, audits of the poor increased, through a special program meant to ferret out Earned Income Tax Credit fraud, but audits of people making more than $100,000 fell from 210,000 in 1996 to 92,000 in 2001 -- despite the fact that there were 80 percent more income filings over $100,000.

No one likes being audited, of course. But no one likes paying unnecessarily high taxes, either. And enforcement does work. Eric Toder, a tax-policy expert at the Urban Institute, says that each dollar spent on IRS agents returns about four or five dollars in recovered taxes.

Continued here.

By Ezra Klein  |  April 19, 2010; 2:05 PM ET
Categories:  Taxes  
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Comments

I agree in principle, but the IRS makes it hard to defend them. They audited me three years in a row as a student, when my income was $1200/month. They insist my retired folks owe a ton of taxes from renting their house two years ago, when they didn't rent the house. WTF?

Posted by: AZProgressive | April 19, 2010 2:53 PM | Report abuse

Republicans would (and should) salivate over the prospect of Democrats functionally proposing an increase in IRS collection agents (we call em "rev'nooers" down here) and audits.

"Unemployment has skyrocketed! The economy is tanking! And what do the Democrats want to do? Shake you down for more money. That's right, you may be having trouble making ends meet, but Democrats want to use IRS gestapo tactics to take even that away from you!"

FinReg is tough to make a coherent fight against. An increase in IRS agents and audits would be very easy to argue against, and would also fit in the overall narrative of government overreach, inside-the-beltway Democrats being out of touch with the people, and so on.

Irrespective of the wisdom of increasing audits to recover tax dollars (and, in this Internet/cell-phone-camera/twitter-to-facebook age, it may be a much bigger public relations problem than it was in the late 90s) I expect that to many on the right (and center-right) it would seem the exactly wrong focus in this economy, and just more evidence of the ack-basswardsness of Washington.

I think, these days, the IRS tends to err on the side of not harassing citizens. And I tend to think that's probably the correct side to err on.

Posted by: Kevin_Willis | April 19, 2010 2:57 PM | Report abuse

Ezra - Do you think this was a part of the GOP's "Starve the Beast" program or just trying to give rich donors a bye on paying taxes?

Posted by: nisleib | April 19, 2010 3:03 PM | Report abuse

Great post. But the title is linguists nightmare. You use an archaic inflected form for the infinitival ("cometh" is just old-style for "comes").

Posted by: grahamkatz | April 19, 2010 3:09 PM | Report abuse

Kevin, I think you come up with a way to sell an increase in audits if it was happening.

"Every year millions of Americans do their part and pay their taxes. These taxes pay for keeping the water we drink free from poisons. They pay for helping students afford college and getting teachers into underserved areas. They pay for maintaining our national parks and historic sites. They pay for our diplomats over seas and the military that keeps us the strongest nation the Earth has ever seen.

A few Americans, however, hire accountants and money managers to find every loophole they can. They stash their money in every nook and cranny they can find and they're able to get away with it because they can afford to get expensive help. These people get all kinds of benefits from the system maintained by our government, but they're not paying what they owe into that system. That ends today. I know when people hear that we're hiring IRS agents they get a little antsy. We're not coming after your grandmother who loses a receipt and we're not coming after the student that makes some money on the side mowing lawns. Every year we lose over $3 billion from tax evasion, and by and large it's not from people confused by the forms or making small mistakes. It's from people that are cheating, and from today on we're going to do our best to make sure that they're not passing the cost of our society on to the people willing to play by the rules. Thank you."

Still, you're right that the Republicans would scream bloody murder, but I don't think there's much you could do these days that wouldn't get that response.

Posted by: MosBen | April 19, 2010 4:18 PM | Report abuse

TAANSTAFL

I think a good first step would be to curb some of the more egregious corporate tax loopholes and offshore shelters. Taxes are about equity and when more than half of the Forturne 500 companies don't pay any, it causes rage among the small individuals who are audited. So, split the difference and collect from both top and middle.

Posted by: Jaycal | April 19, 2010 5:17 PM | Report abuse

Who are the people who are not paying? Rich, poor?

Posted by: tomtildrum | April 19, 2010 6:17 PM | Report abuse

Ezra,
Don't forget that one of the most feared/hated/reviled/etc. figures in ancient, medieval, renaissance times was the tax collector. The distrust of the collection agent for the ruler goes back a long way, and is deeply rooted. An easy target for the common rabble and "Republicans."

Posted by: elmvwm | April 19, 2010 6:23 PM | Report abuse

The focus should be on redesigning and simplyfying our tax system so that it becomes virtually impossible to cheat, rather than making audits and other types of enforcement actions by IRS agents increasingly common.

I am sure that Ezra's numbers are accurate about lost revenue, but I am also sure that many people miss deductions and credits as well, thanks to the complexities of the current system.

Posted by: Patrick_M | April 19, 2010 6:47 PM | Report abuse

It just doesn't make sense to audit small fry for pennies when rich folks (top 5%) get most of the income and also cheat the most on their taxes. My wife was audited a few years ago on her 39K small business income. She ended up owing 1K because her accountant used some shady moves on payroll tax payments. Still, her entire salary is chump change to the top 1% of income earners. I bet it cost the IRS more to send the agent to do the audit than they got back. Probably not the case for the plutocrats...

Posted by: srw3 | April 19, 2010 7:18 PM | Report abuse

I've really become a believer in the idea that the IRS should just send everyone completed forms, which they simply sign and return. If they think there's something wrong with the return, they can submit an amended form, but for most people it will be much more easy that what we've got now.

Posted by: MosBen | April 20, 2010 7:37 AM | Report abuse

My least favorite commercial in the world is the one for the tax attorney. It shows couple after couple who owed the IRS big bucks and claim the attorney got them a settlement for pennies on the dollar.

I want to see each of those people pay every penny or rot in prison.

How the heck do you end up owing the IRS $100K without years of deliberately hiding income?

Posted by: allanbrauer | April 20, 2010 11:14 AM | Report abuse

Who are the people who are not paying? Rich, poor?
Posted by: tomtildrum | April 19, 2010 6:17 PM
*******************************************
Government employees? Administration officials?

Posted by: Lilycat1 | April 20, 2010 3:40 PM | Report abuse

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