It’s almost the middle of April, which means we’re not far from everyone’s favorite holiday – Tax Day! As we celebrate by rummaging through records and worrying about our bank accounts, we are reminded that we all hate the IRS.
While this disdain for the agency may be one of our most widespread and unifying American values, we should remember that they have a difficult job. The IRS is our nation’s bearer of bad news. They have to annually reacquaint us with of one of life’s most inconvenient truths: Running a society costs money.
But I’m not worried that this hatred will hurt the IRS’s feelings. They’re tough people, and they’ll get over it. What’s worrisome is that their unpopularity makes them easy political targets, and for a variety of reasons, the IRS needs some support right now.
First, jobs that make it easier to evade taxes are becoming more common. Employees who earn salaries or wages at larger companies are not likely to dodge their income taxes. They leave behind a paper trail of paychecks, W-2s and federal withholdings, so their money has nowhere to hide.
On the other hand, for small business owners, independent contractors and freelance workers, tax evasion is a lot easier. Without a corporate bureaucracy keeping tabs on them, their income isn’t well recorded. This means they can report much less than their actual income when filing taxes, and they often get away with it. According to a 2008-2010 study, these people underreported their annual income by an average of 64 percent over that time.
With the increasing popularity of freelance jobs through services like Uber, Lyft and Upwork, this underreporting epidemic is going to get more severe. Between 2005 and 2015, these jobs made up 94 percent of the net employment growth in the U.S. That’s a huge number of people with a good chance of short-changing the IRS.
It also appears that our partisanship is hurting tax revenue.
The fundamental reason we pay taxes is to finance the government’s objectives. The government sets goals for the country, and we all pitch in to help fund their efforts. But what happens when a large part of the tax base doesn’t believe in those goals?
When that’s the case, people are more willing to avoid paying taxes, and according to a recent economics paper from the National Bureau of Economic Research, partisanship is driving this effect. The paper found that since the George W. Bush era, taxpayers in counties that voted against the sitting president have been more likely to underreport their taxable income.
And unfortunately, our country is becoming more polarized, so regardless of who is in office, a large portion of the public will be strongly opposed to the government’s plans and thus less willing to contribute their tax dollars.
As if this wasn’t enough for the IRS to deal with, the agency’s funding has also gone down in recent years. In 2010, the IRS budget was around $13.2 billion, but in 2016 that was cut to $11 billion. Both numbers are adjusted to 2016 dollars.
Over that time, the IRS had to cut about 14,000 enforcement employees, which is over a quarter of its enforcement staff. These are the employees that would deal with the difficult freelance workers and anti-government tax evaders, and the effects of losing them show up in the numbers. Between 2010 and 2016, the money collected from tax audits and investigations dropped from $18.6 billion to $10 billion.
Surely Congress has heard that you’ve got to spend money to make money, right? Because this principle is abundantly evident within the IRS. Former IRS chief John Koskinen said that for every $1 given to the IRS, we can expect about $4-5 back in tax revenue. We should have no issues funding this agency, but our government is always reluctant to do so.
While the lost tax revenue is frustrating and wasteful, an ineffective IRS causes larger issues too.
The taxes we charge are determined by the plans discussed and debated at length by Congress. These plans are supposed to be strategic and intentional. They decide who pays and how much. They incentivize good behaviors and discourage bad ones. They attempt to shape our economy based on our ideas of what society should look like.
But if the IRS can’t truly enforce them, then how effective can the tax plans really be? Without a strong IRS, our plans lose their intentionality. The economy then favors not just those whom the tax legislation has deemed valuable but also those whom the IRS has deemed hard to keep track of.
Overall, this means we have less control over the direction our society is headed in, and it comes at a time when economic strategy is vital to stay competitive around the globe. So the next time the IRS gets on your nerves, cut them a little slack. Like it or not, we need them, so let’s start acting that way.
Evan Newell is a junior in chemical engineering and can be reached at firstname.lastname@example.org.
Underreported income, IRS funding and audit revenue stats:
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