The Irritating IRS*

The Irritating IRS

Who likes the Internal Revenue Service? Raise your hands now. Hmmmm. No hands.

The U.S. has a self-assessing income tax system. Each year, every taxpayer is required to report income to the IRS, determine how much is owed in taxes, and pay those taxes. The task of the IRS is to facilitate this process and monitor compliance without unnecessarily intruding on taxpayers’ lives. Computerization should be enhancing the ability of the IRS to strike a balance between collecting data while passively monitoring compliance … and actively auditing suspect returns. Improvements in the technology used by the IRS ought to simplify tax return filing and allow the government to more efficiently allocate resources to focus on those taxpayers who attempt to avoid or evade paying taxes. That hasn’t happened because Congress hasn’t wanted it to happen. Congress has refused to allocate monies to the IRS to upgrade its computer systems and has failed to provide the IRS with funding to create online taxpayer filing capabilities. In fact, Congressmen, in their desire to attract both campaign contributions and re-election votes, have gutted the IRS’s budget and stridently undercut its legitimacy. In doing so, elected officials have mastered continued the vote-getting art of delegitimizing those parts of government that are critical to government operations the least popular to voters … and the IRS undoubtedly leads the pack in unpopularity. Elected officials have often mischaracterized its activities as overreaching, unnecessary, inefficient and a drain on revenue. Tax collection is an integral part of a well-run, effective government that provides the revenue necessary to balance the budget. After all, the function of the IRS is to provide the revenues necessary to pay for government operations, including the salaries and lavish benefits received by elected officials. This mischaracterization of the IRS’s functions and the singling out of anomalous outrageous egregious IRS blunders has fired up the voter base, to the detriment of revenue collection, and appealed to those constituencies most affected by those cuts – including the wealthiest Americans who pay the highest taxes and contribute the most monies to election campaigns. The resulting cuts to the IRS budget have meant that, although the IRS audited 8{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} of the tax returns of the wealthiest 1{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} in 2011, it audited only 2.5{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} in 2017. The IRS’s computer systems should be capable of cross-checking tax returns against the informational forms filed by employers, banks and brokers and, to a significant extent, automatically prepare tax returns for those millions of Americans whose only income is from wages and interest. However, the IRS’s hardware and software systems are incapable of doing so. They are in significant need of updating or replacement. No monies have been allocated by Congress for those purposes. And, apparently, none will be. The result is reduced efficiency and increased error, including the misdirection of a disproportionate slice of the IRS’s limited resources. Each such misdirection is highlighted by the media and by culpable elected officials who are the cause of the misallocation and who profit from it with their voters.

The House Ways and Means Committee this year has gone one step further in responding to the lobbying efforts of an important tax constituency: online tax preparation organizations seeking to protect their turf. In April, a bipartisan majority in the House approved the Taxpayer First Act, prohibiting the IRS from developing software that would facilitate taxpayer, rather than tax preparer, tax return preparation – that is, the House has sent to the Senate legislation that would prevent the IRS from developing an online system of tax filing that would both decrease taxpayer burdens and increase tax compliance and audit efficiency. One private industry beneficiary of the proposed law reportedly explained that the legislation would eliminate “a continued competitive threat to our business.” Exactly. The Senate is now considering similar legislation. While it might be better to delegate the development but not the administration of a free online tax filing system to private industry as long as the IRS is itself unable to fund development of such a system because of Congress’s refusal to fund the IRS, the utility of the existing private-industry-funded online filing service leaves a great deal to be desired is questionable. Despite being an industry fixture for several years, it currently serves only ~3{29ea29b64b10057f61377b2c087cd5b7537a0cd24da4295a308b0bf589469f35} of eligible Americans. As a skeptic realist might expect, private industry is not using the free service to encourage free filers, but rather to attract paying customers to its other services.

The U.S. is facing a deficit crisis. Underfunding the IRS is not a solution to that crisis. Study after study has shown that increasing the budget of the IRS would more than pay for itself. It would provide significant – possibly even enormous – financial dividends. Instead of making the operations of the IRS more efficient which also would make it less intrusive, another Congressional cabal is advocating abolishing the IRS. The Fair Tax Act of 2019, introduced by 56 House Republicans in January, proposes to repeal the income tax law and abolish the IRS. Although it cannot command a majority of Congressional votes, it undoubtedly will be a vote-getter. That appears to be the only reason for proposing it without also proposing an alternative tax-raising measure.

Few would argue that America’s income tax law is unwieldy, difficult to enforce and in need of significant overhaul especially when Congress guts the budget of the IRS. However, although an alternative revenue-raiser is necessary and several have been proposed, none is currently under serious Congressional consideration. One that appeals to many in the private sector was the subject of the March 1, 2019 TLR. That proposal is not being considered by either Congress or the President, perhaps in part because it would gut the profits of the private tax preparation industry. There is little argument that Congress needs to consider realistic solutions to our currently overly-burdensome income tax system. The IRS should not be used as a scapegoat for inaction by Congress. It also should not continue to be underfunded for purely political reasons. The positives and negatives of our current tax laws and tax reporting/collection system should be carefully weighed in creating a workable revenue and tax collection structure. That indeed would be a major step towards making America great again.

A Fourth Gerrymandering Court Decision

A three-judge Federal District Court panel in Cincinnati last week held that the congressional map drawn by the Ohio Republican legislature in 2011 was unconstitutional under the 1st and 14th Amendments (see the April 24th TLR and “Emails are Forever: Gerrymandering Redux” in the April 29th TLR).

A Reader’s Comment on “America at War”

“You gave only a partial analysis and, worse, backed away from stating the sad truths. It was America [that] launched these wars and America has the most to lose. We’ve already lost the fake war with North Korea. All our enemies know it and so do our allies. South Korea and Japan are already pulling away. And this follows on the useless NAFTA negotiations and mutually destructive tariffs imposed (with more threatened) on Canada and Mexico and Europe and China’s reluctance to give [the U.S.] any of the really important concessions in those forever tariff talks. After all the hype about how badly China would suffer from tariffs, China doesn’t seem to be in any rush. If we lose the sanctions war with Iran, it will be final proof that all our threats are empty. That’s exactly what Trump showed in his Venezuela talk [on Friday] with Putin. Where’s the Big Stick you talked about?” (The reader is referring to “Speak Softly and Carry A Big Stick” in the March 27th TLR.)

Finally (from a good friend)

Dog Pack Attacks Gator in Florida:

At times nature can be cruel, but there is also a raw beauty, and even a certain justice manifested within that cruelty.

The alligator, one of the oldest of the “apex predators,” can still fall victim to an implemented “team work” strategy made possible by the tight-knit social structure and “survival of the pack mentality” bred into canines.

In the photo below, you’ll note that the Alpha dog has a muzzle hold on the gator preventing it from breathing, while another dog has a hold on the tail to keep it from thrashing. The third dog attacks the soft underbelly of the gator.

Not for the squeamish.




*┬® Copyright 2019 by William Natbony. All rights reserved.

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