Wealth

How Congress made it easier to avoid the IRS

Key Points
  • The fiscal 2020 budget Congress passed last month continues the inflation-adjusted decline in IRS funding over the past 20 years.
  • Overall funding to the IRS was $11.5 billion, up 1.8% from the previous year, according to the Tax Policy Center.
  • In total, IRS funding has declined by more than 20% since 2010, factoring for inflation, the group said.
The Internal Revenue Service headquarters in Washington, D.C.
Andrew Harrer | Bloomberg | Getty Images

Every budget cycle, members of Congress solemnly promise to better fund the Internal Revenue Service so it can do its job of collecting taxes and serving the taxpayer. And once again, Congress has done the opposite.

According to an analysis by Robert Weinberger of the Tax Policy Center, the fiscal 2020 budget Congress passed last month continues the inflation-adjusted decline in IRS funding over the past 20 years.

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Overall funding to the IRS was $11.5 billion, up 1.8% from the previous year. But when inflation is factored in, the budget represents a reduction — and almost all of the added funding will go to a mandated pay increase for existing staffers. In total, IRS funding has declined by more than 20% since 2010, factoring for inflation.

"This year's IRS appropriation is just more of what we've seen over a decade of decline," Weinberger said in the report.

All of which means the IRS has less money for auditors and enforcement, and therefore less ability to collect the taxes owed to the federal government. According to ProPublica, the IRS enforcement budget is now down by more than 25%, with the number of IRS employees down by 30,000 over the past decade.

And a new IRS report, as cited by The Wall Street Journal, shows that taxpayers are now half as likely to get audited as they were in 2010 — with only 0.45% of returns audited. The wealthy are even more likely to escape the scrutiny of the IRS: Audit rates for those making $10 million or more have fallen from 14.52% in 2017 to 6.66% in 2018.

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In preparing the 2020 IRS budget, Treasury Secretary Steven Mnuchin promised to "deliver a customer experience comparable to the best financial institutions in the world," emphasizing taxpayer services. But compliance offers the best return for American taxpayers. Estimates show that every dollar invested in the IRS generates at least $4 in added revenue, by chasing down uncollected taxes. The current "tax gap" — the difference between taxes theoretically owed and taxes collected — is now estimated at about $380 billion, according to the IRS itself.

What's more, a lack of funding and poor technology means the IRS is increasingly prone to cybersecurity threats and identity fraud.

"The IRS remains a deeply challenged agency with reduced resources," Weinberger said. "It's playing catch up in halting tax shelters and income shifting to tax havens, at a high risk of filing season glitches affecting over 155 million individual taxpayers."

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