IRS Needs 'Bare Minimum' Funding Increase, Democrats Say

We write requesting that you support the President's budget request for $12.3 billion for the Internal Revenue Service (IRS). This increase is an important reversal of short-sighted and damaging budget cuts which has increased our national debt, left the IRS ill-equipped to combat refund errors and fraud, drastically reduced taxpayer services, dangerously reduced audits and limited the IRS's ability to implement new laws passed by Congress.

The drastic cuts to the IRS's budget forced it to reduce its staff by more than 15,000 workers since 2010, a significant portion of its workforce. This has left an agency unable to adequately invest in critical computer systems to fight back against thieves stealing taxpayers' identities and filing fraudulent returns. In addition, the timeliness of taxpayer services has dramatically fallen. Thus far this filing season, only 43 percent of taxpayers' calls to the IRS have been answered, and only after average wait times of 28 minutes, according to the National Taxpayer Advocate. These figures are expected to continue to worsen over the course of the filing season.

Because the IRS is inadequately staffed, it will be unable to fully enforce the Foreign Account Tax Compliance Act and implement the tax subsidies in the Affordable Care Act. The IRS has oversight responsibilities of non-bank financial institutions such as money services businesses. The agency needs more examiners to strengthen oversight of these entities. In addition, the U.S. tax system is based on voluntary compliance. Honest taxpayers bear the brunt of IRS funding cuts, while tax cheats score the benefits due to fewer audits.

Cuts to the IRS dramatically reduce funds to pay for other government investments and thus increase the national debt. In 2013, the Treasury Inspector General for Tax Administration reported that 2010 to 2012 budget cuts resulted in a loss of $7.6 billion in revenue in 2012 alone. The IRS estimates that every dollar invested in the IRS's enforcement, modernization and management system reduces the federal budget deficit by $6 or more. In addition, every dollar the IRS "spends for audits, liens and seizing property from tax cheats" returns $10.

We concur with Nina Olson, the nonpartisan National Taxpayer Advocate who said, "This is just plain nuts. If you are trying to collect revenue and reduce the deficit, you don't achieve that by cutting your accounts receivable function and furloughing its employees. As the revenue collector, the IRS is different from all other federal agencies. Each dollar appropriated for the IRS generates substantially more than one dollar in federal revenue. In FY 2012, the IRS collected about $2.52 trillion on a budget of about $11.8 billion. That translates to an average return-on-investment (ROI) of about 214:1. . . . In 2011, former Commissioner Shulman estimated in a letter to Congress that proposed cuts to the IRS budget would result in reduced revenue collection of seven times as much as the cuts."

Congress has reduced funding for the IRS to levels that are totally inadequate and completely unacceptable. The President's request for an increase of $1 billion, is the bare minimum increase our nation needs to raise taxpayer services to acceptable levels; enable the IRS to invest in advanced technology to combat the growing problem of refund overpayments, specifically identity theft refund fraud; adequately fund tax enforcement and oversight responsibilities including addressing Cybersecurity threats; and lower our national debt.