This tax day, hope for a more powerful Internal Revenue Service.
For decades, one of America’s two major parties has done everything in its power to cut taxes, especially on the wealthiest, and to demonize the agency in charge of collecting them. (Hint: it’s not the Democrats).
In the face of this assault, the rest of the country’s political class has largely gone along, or gone silent. Precious few have enthusiastically defended what Alexander Hamilton called the “vital principle of the body politic”—a robust power to collect the money necessary to achieve the nation’s common goals.
If the American revolution was about rejecting taxation without representation, the American constitution was about enabling taxation with representation. The notables who gathered in Philadelphia in 1787 made sure the federal government would have the power to tax that it had lacked under the disastrous Articles of Confederation.
To Hamilton, taxation was “an indispensable ingredient in every constitution” without which “government must sink into a fatal atrophy.” In embracing an expansive federal taxing power, he echoed Adam Smith’s “Wealth of Nations,” which described taxes as “a badge, not of slavery, but of liberty.”
No one relishes paying taxes, of course. Nevertheless, as the sociologist Vanessa Williamson has shown, most Americans understand that taxation is the price of a civilized society—which is remarkable given the reigning rhetoric. When pollsters ask Americans how they feel about our tax system, most don’t question its legitimacy or kvetch that their rate isn’t fair. Instead, they complain that it’s too favorable toward the rich and overly complex. They also say it’s frustrating to deal with beleaguered IRS employees. In other words, the most common grievances come from having too hamstrung an IRS, rather than the opposite.
Let’s begin with the leading complaint: that the rich get special treatment. The IRS estimates that around one in six tax dollars go unpaid—a loss that likely exceeds a half trillion dollars a year. Since most American have their taxes deducted from their wages, there’s no mystery as to the main source of this “tax gap”: It’s the tax evasion of the affluent that leads to the big revenue losses.
Yet audits have been falling for decades. Under Ronald Reagan’s IRS, one out of every 50 individual returns was audited. By the mid-1990s, the ratio was around one in 66. After hostile GOP hearings and legislation, it fell to less than one in 100. And that’s despite the fact that every $1 spent on IRS enforcement yields $6 in recovered taxes.
Some may wonder, doesn’t the IRS deserve this treatment? Isn’t it terribly managed? Actually, no. Given the complexity of our code, the IRS does pretty well, collecting more than $3 trillion at a direct cost of around $11 billion. Its bad reputation stems mostly from false accusations—and the misguided “reforms” that have followed them.
Consider the aforementioned GOP onslaught in the late 1990s. All the most serious charges—armed raids by tax collectors, unjustified subpoenas, aggressive collection of taxes people didn’t actually owe—were later proved false. But not before a new federal law upended the IRS, requiring the agency to jump through more procedural hoops with fewer resources. In the next 15 years, the agency would lose 24,000 employees.
More recent charges against the agency have been only slightly more grounded. In 2013, for example, the inspector general of the IRS alleged that lower-level staff had applied special scrutiny to conservative political groups seeking tax-exempt status—an allegation Republicans seized on to once again slash the IRS budget.
As subsequent investigations showed, what was portrayed as a partisan power play turned out to be an ill-conceived screening process developed by a short-staffed IRS grappling with ambiguous law. Thanks to the new budget cuts, however, the IRS sunk into even greater chaos, with the share of Americans saying it did an “excellent or good job” plummeting from 44% in 2011 to 27% in 2013. Not incidentally, the IRS also essentially gave up policing the increasing number of nonprofits of borderline legality that are flooding American politics with big money.
Republicans have perfected the self-fulfilling critique: Say that the IRS is broken, break it more, repeat.
How do we end this vicious cycle? Simplifying the tax code would help a great deal. Yet merely giving the IRS an adequate budget, sufficient staffing and updated technology would go a long way. So too would empowering the agency to collect unpaid taxes from those whose outlaw behavior—however lawyered up or genteel—is most costly to the nation’s finances. Remember that $6 for every $1 spent on better tax enforcement? Targeted efforts that focus on high-income taxpayers produce more than $47 for every $1 spent.
The tide won’t turn, however, until those who believe in a well-functioning IRS get out of their foxholes. As the Founders insisted, government doesn’t work if it lacks sufficient authority to pursue citizens’ common goals. Politicians who demonize the IRS should be treated not as champions of liberty but as enablers of dysfunction.
Jacob S. Hacker and Paul Pierson are the authors of “American Amnesia: How the War on Government Led Us to Forget What Made America Prosper.”