When the dust-up over the IRS' treatment of non-profit "social welfare organizations" first erupted in early May, I predicted that whatever the findings of looming Internal Revenue Service probes, "the GOP will play politics with the IRS budget regardless. And the certain result will be tens of billions in less revenue annually for Uncle Sam--and more debt for the United States." Two months later, House Majority Leader Eric Cantor has dutifully followed the Republican script from the 1990's and proposed slashing the IRS budget by 25 percent.
In a move that even conservative attack dog Charles Krauthammer called "silly and small," House Republicans want to punish the IRS for its roles in Obamacare and the non-profit non-scandal. As The Hill reported this week:
The House Appropriations Committee released a measure on Tuesday that would roll back the IRS budget by $3 billion -- a cut of roughly a quarter -- in direct response to the agency's targeting of tax-exempt groups.Leaving aside for the moment the impact on the Affordable Care Act, this latest conservative kamikaze mission would add billions in red ink to Uncle Sam's bottom line. And ff this movie seems familiar, it's because you saw it two years ago.
The bill would place other restrictions on IRS staffers, including a prohibition on funding to implement the individual mandate in President Obama's healthcare law.
The Obama Administration wanted to increase the IRS budget from $12.1 billion to $13.3 billion in fiscal 2012 and add 5,000 IRS agents. But the House GOP said no. In April 2011, cost the Treasury $4 billion in lost revenue. Now, the annual report to Congress from the National Taxpayer Advocate shows, "IRS is not adequately funded to serve taxpayers or collect revenue." As the AP explained:
The Internal Revenue Service can't keep up with surging tax cheating and isn't sufficiently collecting revenue or helping confused taxpayers because Congress isn't giving it enough money to do its job, a government watchdog said Wednesday...President Obama, of course, was right. As a stunned Ezra Klein of the Washington Post summed up the GOP's penny-wise, pound-foolish spending cuts" that March:
Congress cut the IRS budget to $11.8 billion this year. That is $300 million less than last year and $1.5 billion below the request by President Barack Obama, who argued that boosting the agency's spending would fatten tax collections and provide better service to taxpayers.
"Converting dollar bills into $10 bills is an excellent way to pay off your credit card. Except, it seems, if you're a House Republican...Nevertheless, just nine months after Jonathan Cohn highlighted the Republicans' "pro-tax evasion, pro-deficits" position, National Taxpayer Advocate Nina Olson confirmed the trend underway for years continues to worsen. "Inadequate funding," the agency web site reported, "means the IRS cannot adequately pursue unpaid tax liabilities." By 2006, the IRS estimated it was unable to collect $385 billion in taxes when there were 114 million households, producing an updated "noncompliance surtax" of nearly $3,400 per household. But with the taxpayer population now at 141.2 million, economist Benjamin Harris of the Brookings Institution estimated the total tax gap could range from $410 billion to $500 billion.
As the Associated Press reported, "every dollar the Internal Revenue Service spends for audits, liens and seizing property from tax cheats brings in more than $10, a rate of return so good the Obama administration wants to boost the agency's budget." It's an easy way to reduce the deficit: You don't have to cut heating oil for the poor or Pell grants for students. You just have to make people pay what they owe."
The implications for America's $3.7 trillion annual budget and projected $642 billion deficit are clear. "You could go a long way toward solving our budget mess by closing the tax gap," Harris said, "But the problem is, it's not easily closed."
Especially if, as Republicans demand, you don't even try. As tax expert David Cay Johnston explained earlier this year in "Honey, I Shrank the IRS" and "The Tax Police Budget Shrinks," the budget sequester is making an already bad situation even worse:
This fiscal year, the IRS will spend 20 percent less per capita in real terms than it did in 2002, my analysis of the official data shows. Back then the Service cost $41.98 per American, but now it is down to $33.55.Apparently, bad service and less revenue is just fine with Congressional Republicans. Rep. Peter Roskam (R-IL), the chief deputy whip in the House, called the dramatically reduced appropriation a "reckoning for the IRS." The American people should call the GOP's predictable payback something else.
...This is bad. Because "revenue" is the IRS's middle name, a smaller budget means less capacity to do the job, which in turn means less tax being collected than is due.
For more background and charts, see "How the IRS Scandal Could Cost Uncle Sam Billions."