Cheating on your taxes has gotten easier. But keep that quiet. If word gets out, it could threaten the way we fund everything from Obamacare to border security.
For years, Congress has systematically kneecapped the Internal Revenue Service, the federal agency entrusted to collect taxes and enforce the law. The move has delighted serial tax evaders, who are far less likely to get caught, let alone prosecuted.
In 2010, 2,788 criminal investigators worked from the IRS. Last year, the number was just above 2,000, a 27 percent drop, according to data from Transactional Records Access Clearinghouse at Syracuse University. Tax examiners were cut by 17 percent. Revenue agents, the men and women with the talent and experience to handle many of the most complex cases, fell 35 percent.
The funding cuts have resulted in fewer audits and criminal investigations, and the agency doesn’t spend as much time on the ones it does investigate, research shows. They don’t have the time to catch as many crooks, nor find as many honest mistakes.
The result is billions of dollars in lost revenue. The tax gap — what is owed but not collected — is pegged at more than $600 billion a year. That’s about what it costs to fund our military. Business owners alone fail to pay at least $125 billion in required taxes each year, the IRS estimates.
The agency isn’t even tracking down as much of the easy money. Look at “non-filers,” people and businesses that don’t bother to file a tax return. In 2011, the IRS investigated more than 2 million cases and collected $3.6 billion, according to the IRS’ inspector general. In 2017, the number had fallen below $400 million.
Corporate giants are under less scrutiny, too. Not long ago, nearly every company with more than $20 billion in assets got an annual look from the IRS, the Syracuse University data shows. Last year, it examined less than half.
In 2010, audits of companies with more than $250 million in assets unearthed $23.7 billion in unpaid taxes. Last year, it was $12.5 billion.
Over the same period, audits of taxpayers reporting more than $1 million in income were cut in half. Little surprise that the taxes the IRS recouped fell from $5.1 billion to $1.9 billion.
The clock is ticking on collecting the unpaid amounts. Tax obligations expire after 10 years, so every new tax season means billions of dollars gone, and another victory for tax cheats. That’s what happens when the nation’s top watchdog sits neutered on the porch.
All the more frustrating: The IRS is one of the few government agencies that pays for itself. It provides a return on investment, as they say in the business world. The more resources it gets — especially in its starved state — the more tax evaders it uncovers. Put another way, for every dollar IRS agents get paid they find many times that amount in unpaid taxes.
This is not an argument for new or higher taxes. It’s about everyone paying their legally required share. If they did, we could lower the tax rates or pay down the national debt. We could fund more cancer research, national parks or another Mars rover. Crippling the agency and then lamenting a lack of revenue is like slashing the local police force and then complaining when no one shows up to investigate your home invasion.
The way it is now, the tax cheats get to spend the extra money. That’s unfair and undermines faith in the system.
No doubt the IRS has an imperfect record. It’s made politically questionable decisions, drawing the ire of Republican and Democratic lawmakers. That said, the agency enforces the laws, it doesn’t write them. If you want lower (or higher) taxes or a simpler tax code, that’s Congress’ job.
The IRS has never been able to go after every tax evader, a little like the Florida Highway Patrol can’t pull over every speeder. But the cases they do pursue act as a deterrent. A punished tax dodger is less likely to cheat again, research shows. Plus everyone else gets the message that someone’s watching. With fewer audits and criminal investigations, experts worry that the deterrent effect will fade.
Once otherwise honest people lose confidence in a voluntary reporting system, compliance can quickly erode. Think of Greece, where evading taxes has become a national pastime. Too many people there think they won’t get caught or that everyone’s doing it. No one wants to be the only sucker paying taxes.
The United States isn’t there yet. But it’s naive to think that everyone will keep on paying if they know the odds of getting caught are close to zero. The dishonest among us evade taxes now. An enfeebled IRS only emboldens them.
Contact Graham Brink at email@example.com. Follow @GrahamBrink.
Who had the most income?
Residents of Washington D.C. ($93,024) and Connecticut ($92,838) topped the list with the highest average adjusted gross incomes, as recorded on tax returns last year. Florida was mid-pack at $61,980.
Here’s a look at a handful of Florida’s 67 counties.
1. Collier $125,451
2. Monroe $111,727
3. Martin $106,244
13. Pinellas $63,435
15. Hillsborough $61,805
31. Pasco $52,616
40. Citrus $47,080
48. Hernando $43,705
66. DeSoto $37,389
67. Hamilton $36,590
Source: Transactional Records Access Clearinghouse