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Before You Cheer IRS Budget Cuts, Consider This

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IRSCongress is cutting the budget of the Internal Revenue Service. Granted, the IRS is not the most beloved agency in our government, and complying with the rules it enforces isn't exactly a favorite national pastime. But before you cheer the move, consider this: While most parts of the government operate by consuming money, the sole mission of the IRS is to generate the funds that keep the country running.

Cutting its budget is like killing the goose that lays golden eggs -- or at least putting her in a smaller pen and feeding her less.

The Cost of Noncompliance

According to its most recent estimates, the IRS reports that the individuals and businesses who don't pay what they owe rob the government (and the rest of us taxpayers, as well) of a whopping $385 billion per year. That's as of 2006, and the numbers have been rising over time.

While our nation has been debating raising taxes on this group or that group in order to generate much-needed revenue, there are taxes already due going uncollected. The IRS estimates the voluntary compliance rate at 84%, meaning that 16% of taxes have to be chased down.

The money to improve our nation's infrastructure and schools, to help create jobs, and to aid cash-strapped state governments needs to come from somewhere. Tracking down those uncollected taxes seems like a good place to start.

Cutting the IRS budget means cutting the number of people hunting down these much-needed dollars. Taxpayer advocate Nina Olson, who operates independently within the IRS, representing our interests, has singled out this budget cut as a huge problem for all taxpayers. She notes, for example, that fraud is more widespread than ever, and the IRS will have fewer resources with which to address it. She estimated that more than a million tax returns in 2011 might have been fraudulent, up 72% from 2010 levels.

Are Pink Slips Deserved?

It would be one thing if the IRS was ineffective at its job. But that does not appear to be the case. Consider these startling numbers David Cay Johnston reported in a column for Reuters:

IRS data show that auditors assigned to the 14,000 or so largest corporations found $9,354 of additional tax owed for every hour spent testing tax returns in the 2009 fiscal year. The highest-paid IRS auditors make $71 an hour. Based on a 2,080-hour work year, that works out to around $19 million of lost revenue annually for every senior corporate auditor position cut from the payroll.

Got that? People paid $71 or less per hour generated $9,354 per hour. They produce more than 100 times their salary. Seems like the smart thing to do would be to hire more such people.

Putting the Costs in Context

Here's another way to look at these cuts: The proposed IRS budget, per Johnston, is less than $12 billion for a year. In other words, it's not a huge resource-consumer in our national budget.

According to ThirdWay.org, drawing on data from the U.S. budget, for every $1,000 you forked over in 2010 federal taxes, $4.06 went to the IRS. Compare that with $4.32 for diplomacy and embassies, $22.53 for transportation, $31.33 for veterans' affairs, and $201.71 for defense.

With our nation dealing with a huge deficit, Congress is taking a service that doesn't require a lot of money to run -- and has the potential to generate many hundreds of billions of dollars more -- and shrinking its budget.

Take Action

If this tax cut seems stupid to you, too, consider letting your senators and representative in Washington know that. It's never been easier to contact your elected representatives.

Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio.


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116 Comments

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Tona K

Thank You for noticing Selena!

February 12 2012 at 9:23 AM Report abuse rate up rate down Reply
shawungunk1

Bottom line: the IRS is a part of the Executive Branch of the government. Its rules and regulation are dictated
by the Congress. Using it as a whipping boy by disgruntled (or concerned) citizens...is simply foolish. If there are injustices, procedures are available to correct like contacting ones Congressman or Senator. If anyone is to blame
for the inequities..it is the Congress NOT the IRS. Considering the millions who defraud the govt on taxes or dont file and or pay taxes..the IRS really is quite harmless. Change the laws..or change the code, is the answer. Flat tax woul dstill require enforcement and collections..but simplify the tax laws. The 9% across the board is absurd.
Hiring a few thousand more IRSers..might result in more collections and audtis. But privitizing some of the
agency's work would be better. A value added tax or surtax, might aid the deficit. But it comes down to the same
problem..too much spending with too little revenue. There are quality reviews cojnstantly at the IRS, in all
branches..but the employees could use lessons in bedside mannters. (Reviewed). Lets fact it, they have the worse job in the country..and do the govts dirty work..at some risk.

February 06 2012 at 12:04 PM Report abuse -1 rate up rate down Reply
1 reply to shawungunk1's comment
jobriendj

Signed
Shawn IRS Employee

February 16 2012 at 3:19 PM Report abuse rate up rate down Reply
Setanta

why WON'T con_gress overturn whatever CIRCUS court---not circuit,CIRCUS COURT ruling that illegals GET full medicaid and their anchors ARE ENTITLED TO EVERY BENEFIT available ? AGAIN AND AGAIN legislation from the benches of these morons that DEFINITELY KNOW what they are doing to the USA and the TAXPAYERS.

same with all the fraud and frauds claiming earned income tax credits---they PAID NO FEDERAL TAXES and are getting FEDERAL MONEY-
either end this bs prOgram or DEMAND PROOF VIA OFFICIAL BIRTH CERTIFICATES.


IF YOU'RE NOT FED UP you haven't been paying attention !

February 02 2012 at 6:24 PM Report abuse +1 rate up rate down Reply
cskirk

From a tax professional, this agency is in fact incompetent and causes taxpayers ridiculous amounts to prove their returns after filing because something didn't match their ssystem. Now I have had to work 22 hours to tell them how the changes they made were inappropriate and my clients return was in fact filed correctly-who pays for the 22 hours? not the IRS.

February 02 2012 at 2:10 PM Report abuse +1 rate up rate down Reply
midsr4kids

This agency only goes afther the 53% of the country that PAYS taxes in the first place .. so an audit says ... your'e a tool .. you didn't pay enough and disregard the people that don't pay at all the land of OBAMA! Hail the hipster TYRANT

February 02 2012 at 2:01 PM Report abuse -1 rate up rate down Reply
1 reply to midsr4kids's comment
gopispoison666

Yeah, I hear the GOP has a plan where the people who are so poor they don't pay any taxes can have their dental fillings drilled out so that the IRS can melt them down and then the GOP can give more tax cuts to the rich.

February 02 2012 at 3:40 PM Report abuse +1 rate up rate down Reply
1 reply to gopispoison666's comment
savemycountry911

Sounds like a good plan to me..........666idiot.

February 02 2012 at 5:29 PM Report abuse rate up rate down
Charles Yeager

Generate Funds ?, laying golden eggs?

Let's get it straight, We the people generate funds, lay the golden egss if you will.

The IRS only collects!

February 02 2012 at 11:49 AM Report abuse rate up rate down Reply
cliffy934

The tax code is to complicated. Even the Director of the IRS has to hire someone to do his taxes, because he said the tax code was to complicated.

February 02 2012 at 11:48 AM Report abuse rate up rate down Reply
1 reply to cliffy934's comment
chris1011

Then throw out your congressman and vote for one who is dedicated to reforming the tax code! Problem solved (except you won't do it - you like your congressman, don't you).

February 03 2012 at 3:23 PM Report abuse +1 rate up rate down Reply
1 reply to chris1011's comment
jobriendj

very sanctamonious of you, yes that letter to your congressman and lack of 1 vote , that should do the trick.
My father has written his congressman several times , no avail, but he did get back some really nice form letters . Even the honest ones aremt Santa Claus and with constinuent bases sometimes in the millions have no time to address the multitude of issues we now face. SO NO PROBLEM NOT SOLVED.

February 16 2012 at 3:28 PM Report abuse rate up rate down
barney

So how much revenue per hour does the average General or Admiral or Gomer Pyle generate ?

February 02 2012 at 11:35 AM Report abuse +2 rate up rate down Reply
Mjames

Funny how they can track someone that owes then hundred bucks but can give an inmate 390 grand

February 02 2012 at 11:15 AM Report abuse rate up rate down Reply
JIM

They dont seem to be very efficient at tracking tax cheats down, and when they do catch someone they settle for pennies on the dollar. Im also tired of these writers using gvt math(just using numbers they like)

February 02 2012 at 10:50 AM Report abuse rate up rate down Reply