Cutting the IRS budget: Starving the watchdog?

A recent report issued by the General Accounting Office details penny-wise, pound-foolish budget cuts made by Congress in the 1996 Internal Revenue Service budget.

According to GAO, the IRS 1996 appropriation was $7.3 billion, $860 million less than what President Clinton had requested and $16 million less than what Capitol Hill gave the IRS in 1995.

Although it seems politically correct these days to use the IRS as a whipping boy and to slash its budget, let's not lose sight of the fact that the IRS is the agency charged with ensuring that taxpayers pay the proper amount of taxes.

Without the IRS to monitor what is essentially a voluntary tax-compliance program, hardly anyone would pay their taxes. So the IRS needs staff and equipment to monitor taxpayer behavior and make sure folks pay their fair share of taxes.

The budget cuts will make it harder for the IRS to fulfill this mandate for the remainder of this fiscal year. The IRS has scrambled to absorb the cuts imposed upon it by Congress by reducing travel and overtime costs, cash awards, hours for seasonal staff and the number of nonpermanent staff.

The agency took these measures to ensure that it had adequate staff to carry out what it considers its most critical function—processing returns and issuing refunds.

But I think the most critical IRS function is taxpayer compliance with the law. The IRS concedes that, as a result of staff-reduction efforts, it put programs directed at identifying noncompliance on the back burner.

On the other hand, programs designed to provide taxpayers with assistance in filing (and keep Congress happy) seem to be progressing more smoothly than last year, according to GAO. Last year the IRS delayed refunds while it validated Social Security numbers and earned-income credit claims.

That makes sense to me. But these common-sense procedures aroused the ire of many a taxpayer—who then took their complaints to Congress.

Guess what happened? The IRS revised these procedures for 1996 to "impose less of a burden on honest taxpayers."

It looks like it's now easier for these crooks to rip off Uncle Sam. In the final analysis, if tax cheats succeed, you know who's going to pay the piper: you and me, buddy—the "honest taxpayers." Who ever said nice guys don't finish last?

The seasonal labor costs that the IRS has saved come at the expense of not using such people to work in compliance programs. IRS compliance programs that employ the largest number of seasonal and term (nonpermanent) staff are: the document-matching program that identifies taxpayers who either under-report their income or do not file income tax returns at all; and the automated collection system that is used by the IRS staff to contact delinquent taxpayers and nonfilers by telephone to resolve such delinquencies. In 1996, because of staff reductions, the agency's compliance efforts will be cut by about one-third, costing the IRS at least $300 million in forgone revenues. How is a reduction in personnel assigned to such essential functions going to help the American taxpayers over the long haul?

The IRS says that, due to staff reductions, it will also collect about $650 million less in 1996 from nonfilers. Add these two figures up, and they come up to almost a billion dollars.

You don't have to be a rocket scientist to realize that there is something wrong with an effort designed to save money that actually costs money. The meat-ax approach to government cost reductions has never worked and never will. Continuing to employ this approach in the face of that knowledge is cynicism at its worst.

Another way of looking at this, I guess, is that we get what we pay for, and we're sure not getting the best that money can buy.

**

Bureaucratus is a retired federal employee who is a regular contributor to Federal Computer Week and the author of Bureaucratus Moneyline, a personal finance newsletter for federal employees, available by subscription on FCW's Web page at http://www.fcw.com. For more information, contact Bureaucratus at bureaucratus@fcw.com.

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