Taxing the Best Work of the IRS

Post office lines were long earlier this week as hordes of taxpayers scrambled to get their income tax returns postmarked before the April 15 deadline (this year pushed back in most states to April 17). Yet, although the mayhem of tax day seems to belie the facts, data complied by Syracuse University Researches indicates that those lines are probably getting shorter--and it's not because taxpayers are becoming any more punctual. Congressional defunding of the IRS' auditing budget, combined with a dwindling staff and a series of complex new regulations enacted by the IRS Restructuring and Reform Act of 1998 have led to decreases in auditing and less enforcement of penalties for delinquent taxpayers. It's a cheater's dream come true.

The effectiveness of any tax system depends upon compliance, and compliance, in turn, depends on knowing that there will be negative repercussions for non-payment or cheating. But with a permanent staff the same size that it was in 1983, and without the fiscal resources necessary to effectively carry out its duties, the IRS is increasingly unable to inspire citizens to be law-abiding. Indeed, while the number of IRS cases opened on individuals who have stopped filing tax returns has nearly doubled in the last year--from 822,898 cases in 1997 to 1.58 million in 1998--action on those cases fell dramatically. Levies on paychecks and bank account fell by 85 percent, liens fell by 69 percent, and seizures of property fell by an astronomical 90 percent.

The data reveals other disturbing trends as well--most notably the fact that the poor are now more likely than the rich to have their tax returns audited. The imbalance dates back to 1995 when Newt Gingrich and the Republican controlled House threatened to reduce the Earned Income Tax Credit (EITC), fearful that the working poor would abuse the program. In response, Clinton proposed to check fraud and misuse through increased audits of low earners. What has resulted is a state of affairs in which those who make less that $25,000 are more likely to be audited than high earners, corporations and the self-employed--even though, according to a study by the General Accounting Office, the latter groups are more likely to cheat the system. What's more, university-run tax clinics indicate that the IRS has become increasingly negligent of its duties, often denying the EITC to taxpayers without thoroughly investigating the details of individual cases.

If there was ever a time for Congress to take action, it's now. Funding to the IRS must be increased before the organization becomes crippled by its inefficiency and biased auditing. Congress must reinstate funding for corporate audits, reevaluate EITC monitoring standards, and--perhaps most importantly--refund research cut in 1995 aimed at determining which tax sectors most need to be audited. (Because of the cuts, the IRS now conducts its audits based on eleven year old data.) If they cannot find more funding, Congress should reallocate the IRS' budget to fund these projects and spend less time chasing after small-time tax evaders.

The IRS too must take action. Insufficient funding is no excuse for reticence and prejudicial treatment of the working poor.