July 24, 2021
THE DIED Donald Rumsfeld once sent a letter to the Internal Revenue Service (IRS) to accompany his tax return. “The tax code is so complex and the forms so complicated,” he wrote, “that I know that I cannot trust that I know what is being charged, and therefore I cannot and do not know, and I suspect a great many “Americans have no way of knowing whether their tax returns are correct or not.” This is probably the least controversial statement the George W. Bush Secretary of Defense has ever made. But despite the widespread terror of the federal tax authorities, the Democrats in the Senate are proposing an increase in their budget. Is that wise?
The political logic for this is clear. To sum up the bill of a large expenditure bill, Democratic senators assume that some of the required revenue can be raised by more forceful enforcement of the tax code. Increasing tax revenue without enforcing new tax hikes sounds too good to be true. But the Congressional Budget Office estimates that an additional $ 20 billion spent on enforcement over ten years will add $ 61 billion.
For anyone who has ever completed an American tax return, the prospect of an increase in the tax collection agency certainly sounds worrying. It is especially ominous for Republicans, some of whom also suspect it is an exquisite tool for harassing conservatives. The answer to the insane complexity of the tax code, however, cannot be to put more and more responsibility on the IRS while slashing its budget. And that’s exactly what happened.
Since 2010 the budget of the IRS has decreased by 20% in real terms. In the meantime, the tax code has become even more complicated. And in addition to the task of finding out who has adhered to this expanding set of rules and who has not, the authority is also asked to make decisions, e.g. B. Which organizations deserve the nonprofit (and therefore the tax breaks) as well as play a role in managing an expanded range of tax credits.
One result has been a decrease in the enforcement of tax laws. The proportion of individual tax returns examined by the IRS declined by nearly half in 2010-18; the share of audited corporation tax returns fell by almost 40%. For those with a Rumsfeldian view of taxes, that sounds like something to cheer about. It is not. Conservatives are usually interested in ensuring that laws are consistently enforced. In the tax area, however, the combination of obscure rules and excessive room for maneuver means that compliance is promoted by semi-random threats. Low-income Americans who depend on tax credits are more likely to be audited than wealthy Americans.
The decline in enforcement is also an invitation to break the rules. An investigation by the Manhattan attorney has so far found that the Trump Organization paid fees for private schools, cars and homes of loyal employees, which reduced their individual tax burden. It is not clear how common such practices are and whether they are actually against tax law. But for Americans with fewer Rococo tax regimes, such systems reinforce a notion that undermines general support for capitalism: that the rich not only have more money, but are also subject to less onerous rules.
The argument about increasing the budget for tax collection has become a substitute for the battle over whether taxes should be higher or lower. This is wrong. Even those in favor of lower taxes should want the system to be properly managed. Therefore, an increase in the funding of the IRS makes sense. But Congress should also separate the task of deciding which organization has which tax status from processing and reviewing tax returns and tax credits. And above all, the tax code itself needs a radical simplification so that a former defense minister and CEO of a pharmaceutical company can make a declaration without having to resort to epistemological disclaimers. ■
This article appeared in the Leaders section of the print version under the heading “Internal Affairs”.