The IRS Has Too Many Responsibilities

January 23, 2015

Last week, IRS Commissioner John Koskinen said at a news conference that the IRS may need to use furloughs in order to handle its budget issues. A well-functioning revenue service is necessary for an effective government, so it is worthwhile to consider the facts of the situation, and what they mean.

Congress indeed cut the IRS budget by $346 million in the December spending deal (called the “Cromnibus,” inarguably one of the worst Beltway neologisms ever.) Even over a longer time scale, the IRS budget certainly hasn’t grown at the same rate as the economy. Really, it hasn’t grown much at all for many years. Nonetheless, the IRS does have about $11 billion, so it’s not like the service is starved for cash.

On one hand, the IRS’s basic responsibilities have gotten less onerous over the years. More and more taxpayers file electronically, which means that everything just zips straight into the IRS’s computer system with little need for human oversight. This should mean that the IRS really doesn’t need to grow, and if anything it could stand to shrink.

But on the other hand, the IRS has been overloaded with all sorts of additional responsibilities. It’s acting as an extension of the Department of Health and Human Services in enforcing the Affordable Care Act. It’s acting as an extension of the Federal Election Commission and regulating political speech (an authority it has perhaps not used so well.) It’s acting as an extension of the Department of Energy with its residential energy credits, and it’s acting as an extension of the Department of Education in offering deductions and credits for teachers and students. It has to figure out who has health insurance and who has children and where the children live. It even has to try to get data from foreign banks, due to the complexity of our worldwide system of taxation. The more arbitrary things find their way into the tax code, the more verification systems the IRS has to put in place.

At the moment, the IRS struggles with verification on even the most important features of the tax code – like the even larger and more important – and harder to verify.

These kinds of responsibilities require manpower and fast eat up the IRS’s budget. But rather than continue throwing money into the budget, Congress should make these extra responsibilities easier through tax simplification.

Unfortunately, a fundamental tax reform that truly simplifies the code is a kind of once-in-a-generation event. But while we wait for that once-in-a-generation event, we still have to pay our taxes. And this tax season, the IRS may be too busy with its difficult responsibilities to provide good taxpayer services; for example, things like phone help lines. A lot of taxpayer advocates contend that IRS customer service has gotten more difficult to reach over the years; that trend will probably continue. Normal taxpayers, one way or another, are going to pay the price for an overly complex tax system.

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