June 22, 2018
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How should we punish wayward IRS? Give it more money


Nothing riles up Americans quite like the taxman. And the Internal Revenue Service, unloved in the best of times, has had a rocky few weeks.

An inspector general report released May 14 said that IRS employees had been improperly scrutinizing some conservative groups seeking 501(c)(4) tax-exempt status. One group alleged that the IRS had leaked confidential information about its donors. Another report, released this week, said the agency spent some $49 million on training conferences, with the usual list of dubious team-building activities, from 2010 to 2012.

The IRS is now under investigation by no fewer than six congressional committees and faces a criminal probe from the Justice Department related to the 501(c)(4) scandal. Some Republicans, overcome by fresh anti-tax enthusiasms, want to abolish the agency.

That won’t happen, much as many Americans may fantasize about it. But there are a few reforms Congress can undertake to make the IRS more accountable.

The first concerns personnel. Several officials at the agency have been placed on leave, and Danny Werfel, the acting IRS commissioner, must determine if anyone else deserves to go in response to the recent scandals. The problems go a bit deeper, though. The agency remains decentralized, with almost 100,000 employees in offices across the country, and thus responsibility for errors tends to get diffused.

Incompetent employees should be easier to fire, and the disciplinary process should be accelerated.

The second reform has to do with money. Rep. Hal Rogers, chairman of the House Appropriations Committee, said he would consider restricting the IRS’s budget in response to the recent scandals. “The power of the purse rests in Congress,” Rogers said. “We’re prepared to use that purse to get to the truth.”

Rogers has this dynamic precisely backward. One reason the IRS performs incompetently is that Congress keeps giving it more and more complex assignments while giving it less and less money. The agency’s budget has declined every year since 2010, even as Congress has required it to address everything from health care reform to campaign finance to the nightmarish Foreign Account Tax Compliance Act. At the same time, the IRS workforce decreased by 9 percent from 2010 to the end of 2012, according to an inspector general’s report.

The results are clear. The IRS has a backlog of a million pieces of correspondence. Taxpayers must wait an average of 17 minutes to reach someone on the phone, and only two in three actually get through. It takes 180 days to resolve a case of identity theft.

The agency’s budget should instead be increased.

Finally, and perhaps most egregiously, the complexity of the tax code — at some 4 million words — surpasses the power of English adjectives to describe it. People and businesses spend more than 6 billion hours a year trying to comply with it. It needs to be drastically streamlined. But remember: Your taxes aren’t complicated because the IRS wants them to be. They’re complicated because Congress made them that way.

That’s why we won’t be able to reform the IRS properly until we reform our tax system. We’ve argued for an overhaul that closes most loopholes, lowers rates and simplifies the tax code.

Prospects for such a comprehensive reform look dim at the moment. Here’s hoping the latest IRS fiasco will concentrate congressional minds.

Bloomberg News (June 6)

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