IRS to Receive More Funding in Some Critical Areas

1040 Form

I wanted to follow up on Matt's blog post from last week about how regulatory agencies fared in President Obama's FY 2010 budget proposal. As Matt pointed out, the administration is making major investments in some agencies while shortchanging others. One of the agencies Matt didn't cover was the Internal Revenue Service (IRS), which is a microcosm of the larger trend Matt was pointing out.

Under President Obama's FY 2010 budget the IRS would receive an overall increase of $764 million, of which $400 million would be for tax enforcement efforts. This is a long overdue increase since, according to federal budget figures, the $4.85 billion dollars the IRS was appropriated to execute enforcement tasks in FY 2008 was only eight percent more than they were working with 13 years ago. The Obama budget would increase the total for enforcement to $5.57 billion, a 13 percent increase.

Over 80 percent of this new funding would be targeted toward reducing the tax gap, which is the difference between how much the government is owed in taxes and how much it actually collects each year. Economists estimate the tax gap to range between $300 and $350 billion annually, with the last government estimate conducted by the IRS in 2004 putting it at $345 billion that year.

This increased funding for enforcement efforts is a good start, as is the decision the IRS made to discontinue using private tax collectors. Yet, other areas within IRS still need help. While enforcement got a bump in funding, resources for taxpayer services delivered by the IRS remains relatively flat after taking heavy cuts during the Bush years. As OMB Watch argued in a 2008 report, it is not sufficient to increase enforcement spending at the IRS at the expense of funding for services. Efforts to reduce the tax gap will only be successful with a combination of tough enforcement and effective services for taxpayers, especially those filing for the Earned Income Tax Credit.

It looks like the IRS budget proposal is very similar to the broader trend of this administration making erratic investments in regulatory agencies. Within the context of the deteriorating economy and the low point from which they are starting after the disastrous Bush administration, though, it's obvious that not every agency will be able to receive the funds it needs. Let's hope that future budgets continue to make progress towards full funding.

Image by Flickr user herzogbr used under a Creative Commons license.

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