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IRS Chief Warns: Budget Cuts Could Cost the US Billions

Rob Garver
The Problem with Low-Income Tax Credits: Billions in Improper Payments

Internal Revenue Service Commissioner John Koskinen on Wednesday offered a bleak assessment of what will happen to the national debt if his agency continues to face funding shortfalls and is prevented from replacing most of the employees who retire or leave for other reasons. The end result, he predicted, will be lower rates of compliance, less revenue for the federal government and larger federal budget deficits.

Koskinen, who came out of retirement to take over the agency four years ago, was speaking at the National Press Club in Washington when he reminded his audience that the IRS has been operating under a virtual hiring freeze since 2011, which left the agency powerless to replace the 17,000 employees who have left government service since then.

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The agency’s enforcement arm has been particularly hard hit, he said. As an example, he noted that the ranks of revenue officers -- people who go out into the field to find delinquent taxpayers and arrange for them to make payments -- has been cut by more than half since 1996. There were 7,400 revenue officers 20 years ago, compared to only 3,500 now. This is despite the fact that the number of annual tax returns filed by Americans has gone up many millions over the same period.

Koskinen said that the percentage of taxpayers who are audited on an annual basis is at a decade-long low. He warned that continued cuts that make it difficult for the IRS to do its job extend well beyond a revenue shortfall.

“If someone who is paying their fair share of taxes sees other who don’t, and those others get away with it, that taxpayer may be a lot less motivated to be tax compliant the next time around,” he said. “If the situation continues, the risk is to the nation’s overall compliance rate.”

He added, “As the notion takes hold that the tax system is unfair, reversing that notion and the decline of the compliance rate won’t be easy to do.”

Koskinen’s appearance came just a few weeks after the Trump administration released a budget plan that called for major cuts to IRS funding. He expressed hope that Treasury Secretary Steve Mnuchin would try to defend the agency’s funding in the White House, arguing that when an investor purchases an existing business, “You don’t look at the revenue arm and say, ‘I think I’ll starve it of funds and see how it does.’”

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“We’ll have a real problem if the IRS doesn’t have enough employees to help people figure out what they owe or to fairly enforce the tax code,” he said. “And the impact will be on the ability of the government to fund itself. A one percent drop [in compliance] translates into more than $30 billion a year in lost revenues. Think about what a loss of $300 billion over 10 years would do to the federal deficit.”

Koskinen also noted that he would be leaving the IRS in November, when his term as commissioner expires. The 77-year-old, who has been facing demands that he resign or be impeached by House Republicans angry at how he dealt with an investigation into the agency’s treatment of conservative groups seeking tax-exempt non-profit status, did not seem sorry to be leaving.

“Next year at this time, with any luck, there will be a new commissioner,” he said. “Although I still have several months to go as commissioner, I’ve encouraged the administration to search for a candidate who can follow me as soon as possible.”

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