IRS Enforcement Likely to Take Hit in 2012 Approps

Reporting last week in a piece titled, "Bipartisanship lives! And it will likely cost taxpayers money," Suzy Khimm of the Washington Post notes that although Democrats and Republicans are battling over the fiscal year (FY) 2012 budget, "there's one big thing that both parties already agree on: cutting funding for the [Internal Revenue Service (IRS)]." This shortsighted move is likely to end up costing the government money (at a time when every penny is needed) because roughly half of the cuts are coming out of the agency's enforcement budget.

The tax mans taken all my dough / and left me in my stately home / lazing on a sunny afternoon.

The IRS enforcement budget ensures that people and businesses pay their taxes. It funds tax examiners and agents who investigate and collect from those who do not pay on a timely basis. For every dollar spent on enforcement, the government gets back $4 to $5 in revenue. However, the federal government is perennially unable to collect all the tax it is owed; the difference between the two makes up the "tax gap", which is estimated to run $350 billion annually.

Overall, the GOP-led House's appropriations bill calls for more than $600 million in cuts to the IRS, while the Democratic-controlled Senate is looking at roughly $450 million worth of cuts. Of these cuts, both chambers call for more than $266 million to come out of IRS enforcement, which, if enacted, would be $700 million less than the agency requested for the program for FY 2012.

These cuts would reverse two years of increased funding for the unit, and would begin returning IRS funding to the anemic levels seen under President George W. Bush. A GOP amendment limiting the hiring of more IRS agents weakened the FY 2011 IRS budget, and these FY 2012 cuts will ensure even fewer examiners are able to collect taxes: the National Treasury Employees Union (NTEU) estimates the cuts will force the IRS to lay off 3,000 to 4,000 personnel.

House Appropriations Ranking Member Rep. Norm Dicks (D-WA) summed up the shortsighted cuts thusly: “The IRS estimates that this cut will end up costing $4 billion per year due to the lack of enforcement on tax cheats. This cut literally increases the deficit.” The Post writer concludes, "Ultimately, the lost potential revenue could end up outstripping the upfront savings from IRS budget cuts."

Image by Flickr user Leo Reynolds used under a Creative Commons license.

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