Americans spend a lot of time arguing about legislation. For that matter, this blog is predominantly focused on what we call “public policy,” which is essentially a term meaning “laws and regulations.” What tends to get much less attention is an equally important aspect of the rule of law: enforcement.
With the exception of policing–the enforcement of criminal laws–we tend to ignore the behaviors of those who have been authorized to enforce the laws once they’ve been passed. For one thing, it is much harder to ferret out the degree of enforcement. If Congress or a state legislature passes a measure, reporting that fact– or opining about its wisdom– is fairly simple. Figuring out whether the law is being fairly and evenly applied–or applied at all–requires considerably more effort.
Take tax law. Bills to raise or lower taxes receive widespread reporting and discussion. But enforcement–or the lack thereof–is equally important, and gets much less attention. When we are talking about taxes, however, there are two equally effective methods for reducing tax liability for the mega-rich: lower rates, and inadequate investigation and application of those rates. When staff levels at the IRS are kept too low, when the agency lacks the ability to audit more than a handful of returns, the millionaires and billionaires can be confident that the odds favor the significant success of various tax avoidance ploys.
President Biden has moved to beef up IRS’ staffing, which has been decimated by the former guy’s administration, and six former IRS commissions have applauded that move in a column for The Washington Post.They provide the context.
As former IRS commissioners, we know the challenges of administering the tax system, which has grown in size and complexity, particularly in recent years.
Yet, during the past decade, budget cuts have substantially diminished the IRS workforce. In real terms, the IRS budget is smaller than it was in 2010, and it has 21,000 fewer employees. The IRS has fewer auditors today than at any time since World War II. Moreover, the agency has struggled to keep pace as complicated tax structures, such as partnerships and pass-throughs, have grown in popularity. Workforce attrition has been most pronounced among agents who examine these complicated tax filings: Thirty-five percent fewer revenue agents handle these returns today than a decade ago.
Their essay goes on to remind readers that, despite its reduced workforce, the IRS has seen its responsibilities increase. The agency administers significant provisions of the Affordable Care Act, and during the pandemic, it has been the IRS that has delivered three rounds of federal payments to hundreds of millions of taxpayers. Now, the agency is preparing to deliver periodic payments of the recently-enacted expanded child tax credit.
Thanks to its expanding authority and reduced staffing, the former commissioners report that
There has also been a substantial decline in enforcement scrutiny of high-earners and large corporations with complex returns: Audit rates for millionaires have fallen more than 70 percent since 2011; audits of large corporations decreased from essentially 100 percent a decade ago to less than 50 percent, according to the most recent IRS estimates.
This situation is no fault of the IRS or its committed workforce, who are dedicated to fair implementation of the tax code and the strongest possible support for taxpayers. Provided appropriate resources, the IRS can make good on its commitments.
The former Commissioners agree that the changes and additional resources that President Biden proposes would “produce a great deal of revenue by reducing the enormous gap between taxes legally owed and taxes actually paid — much of it through increased voluntary compliance.”
The Biden proposal includes provisions on third-party reporting, leveraging information from financial services providers to learn basic information about account inflows and outflows. This information could assist taxpayers in filing accurate returns and help the IRS better focus collection efforts. Research shows that when the IRS has access to third-party reporting, compliance rates top 95 percent. Without third-party information reporting, compliance rates are below 50 percent. Reliable information is critical to an effective and fair tax system.
The statistics cited in the essay demonstrate the importance of effective enforcement. It isn’t simply tax rates that favor the rich–lax enforcement costs an enormous amount that the rest of us must make up. Estimates are that uncollected taxes from those sources are equal to the total taxes paid by the lower 90 percent of individual taxpayers.
It is long past time to give the IRS the resources it needs to ensure that corporations and billionaires pay their taxes. If enforcement is fair across the board, the rest of us will feel a lot better about paying ours.