The Internal Revenue Code requires National Taxpayer Advocate Nina Olson to submit a report to Congress each year identifying, among other things, 20 of the most serious problems encountered by taxpayers, and to make administrative and legislative recommendations to mitigate those problems.
Details of the problems facing taxpayers, described in the just-released report, are so voluminous that the executive summary alone is over 80 pages.
But the most important problem, affecting taxpayer service as well as reduced tax compliance, is the fact that the IRS does not receive adequate funding to do its job. Tied to this is the “mission creep,” which has led a myriad of non-tax compliance tasks to be dumped on the agency.
The report contains a study analyzing the evolution of modern U.S. tax administration from its inception in 1913. This is necessary, according to Olson, because of the lack of understanding about taxation in public discourse today.
“What began as a system that focused primarily on revenue raising and affected only the most affluent and elite taxpayers grew massively during World War II to raise funds for the war effort, and drew the middle class into the taxpayer base,” said the report. “From the latter part of the 20th century through today, the system has grown further to encompass the low income population and have its mission expanded by Congress from being primarily the federal government’s revenue collector to become a favored disburser of government payments and benefits as well.”
“The overriding challenge facing the IRS is that its workload has grown significantly in recent years, while its funding is being cut,” Olson said. “This is causing the IRS to resort to shortcuts that undermine fundamental taxpayer rights and harm taxpayers—and at the same time reduces the IRS’s ability to deliver on its core mission of raising revenue.”
The report appropriately quotes former Commissioner of Internal Revenue Mortimer Caplin: “There may be a tendency to overcentralize Operations, to overextend capabilities, and, yes, to capitulate to overmechanization and underhumanization of tax administration. In brief IRS must constantly weigh machine capability against the actual and psychic costs to the nation.”
Of course, the increasing reliance on mechanization and its resulting “underhumanization” are necessitated by the limited resources that the IRS has to accomplish its mission. Olson points out that despite the huge expansion in the IRS workload, Congress has reduced IRS funding in each of the last two years.
When I spoke with former Commissioner Caplin a year ago, he agreed that the role of the IRS in disbursing social program benefits tended to dilute its original mission of collecting tax revenue. “This has produced a great loss of revenue, because the Service has to focus attention on the wrong returns,” he noted.
And instead of having an annual appropriation, which gets examined yearly, the programs get into the Tax Code but never get out. “It is more difficult to amend the Internal Revenue Code than cut an appropriation,” he said.
Given the fact that every dollar spent on the IRS results in a multiple of revenue coming in, the underfunding of the IRS in recent years is inexplicable. Of all the programs and special interests funded by the government, this agency is the one that makes everything else possible. And if we really want the IRS operating at a more human level, we should be prepared to more adequately fund it.
The imbalance between the IRS workload and its resources is becoming unmanageable, cautioned Olson:
“It is up to Congress to ensure that the IRS continues to be effective, either by reducing the IRS’s workload or by providing adequate funding to enable it to accomplish its assigned mission.”
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