Budget Cuts Help Decrease Tax Revenue By $5 Billion


irs-sorry-conservatives-604ds051013Budget cuts at the Internal Revenue Service (IRS) have meant a decline in the agency’s ability to collect money from delinquent taxpayers, a big factor a drop in enforcement revenue of $5 billion in 2012, up from $2 billion in 2011, according to a report from the inspector general. The agency audited 1.6 million individuals in 2010 but conducted fewer than 1.5 million in 2012. It is opening more delinquent taxpayer accounts than it is closing.

The IRS has experienced budget and staff cuts since 2010, with its funding dropping from $12.1 billion to $11.2 billion last year. It has shed about 8,000 jobs in that timeframe as well. With the decline in funding, it shifted resources from auditing individuals to auditing businesses, with the latter increasing from 58,000 to more than 70,000.

While there were unusually high enforcement collections in 2010 and 2011 thanks to a voluntary disclosure program for those putting money in offshore accounts, budget cuts have hurt the agency’s ability to go after people who don’t pay what they owe.

Meanwhile, the agency was already trying to cope with an increased load and lower budget last year. Potentially fraudulent tax returns were up 72 percent but its budget was down 3 percent.

Sequestration will add to these problems. In April the agency said it would furlough more than 89,000 employees to cope with the cuts. This will continue to rob the government of funds. Furloughing just 1,800 enforcement positions could mean losing $4.5 billion in revenue. Every hour spent on corporate tax enforcement nets more than $9,000 in revenue.

In general, dollars invested in the IRS have big returns. Acting IRS head Danny Werfel told Congress that every dollar invested in enforcement yields more than six. Every dollar spent on modernization, enforcement, and management systems reduces the deficit by $200, and every dollar it spends on audits, liens, and seizing property from tax evasion returns $10.

President Obama has proposed a budget that would increase IRS funding by 15 percent, but Republicans continue to insist on drastic spending cuts.