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Revelations that IRS civil servants used biased criteria to target conservative groups seeking tax exempt status is rightly drawing bipartisan outrage. President Obama, Senate Majority Leader Harry Reid (D-NV), Senate Finance Committee Chairman Max Baucus (D-MT) and Investigations Subcommittee Chair Carl Levin (D-MI) voiced their strong support for probes of what Obama deemed the "outrageous" conduct of agency employees. Democrats are absolutely right to join their Republican colleagues like Susan Collins (R-ME) in warning that even the perception of partisan bias at the IRS "contributes to the profound distrust that the American people have in government."
But even if the scandal in question is ultimately limited to a few "bad apples" in the agency's Cincinnati field office, the impact on both the Internal Revenue Service and federal tax revenues could be severe. After all, the $600 million sequester is already causing furloughs at IRS, cutbacks which on top of previous budget reductions are already costing Uncle Sam billions of dollars in lost revenue a year. And with underreporting of income, tax evasion and outright cheating now short-changing the U.S. Treasury by up to $500 billion a year, another GOP crusade like the successful 1990s Republican war on the IRS would only make the U.S. national debt much, much worse.
In January 2012, National Taxpayer Advocate Nina E. Olson warned Congress that "the combination of the IRS's expanding workload and declining resources" was resulting in "inadequate taxpayer service, erosion of taxpayer rights, and reduced tax compliance." As tax expert David Cay Johnston documented in "Honey, I Shrank the IRS" and "The Tax Police Budget Shrinks," the budget sequestration process which began in March is under-cutting the over-burdened agency's ability to collect what Americans—and especially businesses—owe their government. As Johnston explained last month:
This fiscal year, the IRS will spend 20 percent less per capita in real terms than it did in 2002, my analysis of the official data shows. Back then the Service cost $41.98 per American, but now it is down to $33.55.If this movie seems familiar, it's because you saw it two years ago. Keep reading below the fold for the full story.Those figures are based on the Obama administration's published sequester amount estimates. This week the IRS said the reduction is $594.5 million instead of the White House figure of $973 million or the nearly identical figure implied by the across-the-board cut of 8.2 percent. If the smaller number, which the IRS did not explain despite my request, is correct then the real reduction since fiscal 2002 would be down $7.24 per capita, or 17 percent, rather than 20 percent. Either way this is bad.
Because "revenue" is the IRS's middle name, a smaller budget means less capacity to do the job, which in turn means less tax being collected than is due.
