IRS in Stone Age, but Who’s Complaining?
If I had a nickel for every Internal Revenue Service horror story I’ve heard, I could comfortably pay my taxes--and yours, as well.
These tales of flawed audits, wrongful levies and accidental liens are enough to send a Stephen King scuttling to the relative safety of the undead. But what’s truly frightening is that a monstrously inefficient IRS is what our society really wants.
The facts speak for themselves. The IRS, which must process more information from more Americans more quickly than any other civilian agency, has been shackled to a computer system that wasn’t even state of the art in 1965. The total IRS fiscal 1990 budget for information systems technology is roughly $890 million; that’s less than what a Citicorp or an American Express spends on their information technology infrastructures.
What’s more, only $157 million of that sum is earmarked for modernization; this in an era of software engineering and advanced computer architectures. As far as technology is concerned, the IRS is little better than a Sopwith Camel in an era of Stealth aircraft.
“I think that’s unconscienceable and I think that situation should change,” insists Hank Philcox, who oversees information systems development at the IRS. Not bloody likely.
“The system that is being used is an old batch-processing system that prevents on-line inquiries,” says former IRS Commissioner Roscoe Egger. “When returns are processed today, they’re processed in batches of 100. So it’s impossible to identify a return on an individual basis. . . . In order for the service to do the things that credit card companies, banks and other financial institutions do for their customers, we’d have to change the system from the ground up.”
“We don’t even have the tax return in electronic form,” Philcox notes. “We have to order up the tape to get it.” There was an attempt in the late 1970s to go to an on-line interactive system, but concerns about individual privacy “stopped that in its tracks,” Egger recalls. “The IRS was prevented from doing much of anything except enhance the system and increase capacity.”
In fact, the IRS hit a capacity crisis in the mid-1980s and endured a humiliating debacle at its Philadelphia processing center that hurt tens of thousands of taxpayers. Not only were the IRS technology assets woefully out of date, they were also poorly maintained, according to several General Accounting Office reports.
“This agency has been very badly managed,” adds David Burnham, author of the recently published “A Law Unto Itself,” an exhaustive study of the IRS. “They have started a lot of technology projects that were ill-focused and poorly carried out.” Burnham even warns that another capacity crunch may be in the offing by the middle of this decade; Philcox says no.
What’s going on here? The IRS is an indispensable agency; it gets the money. As Office of Management and Budget chief Richard Darman constantly whines, we need the money. For 20 years, a tremendous explosion of data processing capability has passed the IRS by. Yet the OMB and Congress have consistently underfunded IRS requests for technological investment that could help the agency collect more money more easily. Do you think this is an accident or incompetence?
Get real. The IRS has been technologically gelded because we want it that way. Americans simply don’t cherish ruthless efficiency in tax collection as a fundamental value in quite the same way that they do the right to bear arms or avoid self-incrimination. We want our tax collectors to be diligent, not Draconian; persistent but not insistent; reactive, not proactive; politely apologetic, not burning with the obnoxious zeal of the self-righteous.
With a vague, pre-articulate consciousness, Americans fear that new and improved data processing platforms could turn tax collectors into technical Torquemadas--just waiting to put the digital thumbscrews into our savings accounts at even the vaguest whiff of 1040 heresy. We’d rather suffer the pain of inefficiencies than the eternal torments of exactitudes. Congress and our President know this. They also know that this country was founded on a tax revolt. They understand that our practice of voluntary compliance means “voluntary compliance”--not “voluntary compliance--OR ELSE!”
Just for the sake of argument, let’s throw out all concerns about individual privacy from this discussion. We’ll assume that everybody is completely honest and doesn’t care in the least that the government, if it wants to, can track their every income and expenditure. We still wouldn’t want the IRS to be too well-endowed. Here’s why:
Suppose the Tax Court issued a ruling that, say, disallows certain home office deductions. Today, it would take the IRS over a year to both reprogram its computers and scan all the appropriate returns to dun the relevant taxpayers. But give the IRS an on-line system running state-of-the-art database software and you can build and run these Tax Court scans in a few weeks. The IRS’s Philcox declined to say whether he thought Congress would find this a pleasing prospect.
In other words, the IRS would be able to--on a daily basis, if need be--alter the collection and enforcement proceedings depending on the whims and vagaries of the Tax Court and the legislature. Every day could be an April 15 (indeed, with computer-based deductions for withholding, every payday is an April 15 in miniature).
What we have here is your classic public policy trade-off, says James Q. Wilson, the Collins Professor of Management and Public Policy at UCLA. “That reveals a lot about our attitudes toward government.” How much technology is enough? How much is too much? Do we really want the IRS to be as efficient as American Express? Or, more likely, would we prefer they be just a little bit better than they are now?
By consistently staving off funding a state-of-the-art high-tech tax agency, we taxpaying mice have succeeded in belling the IRS cat. But let’s not kid ourselves: At some point, we will have to consciously decide how we want information technology to reshape the tax collection and enforcement process. I don’t know where we should draw the line. But I do know that how that line is drawn may be as politically volatile an issue as taxes themselves. To paraphrase Thomas Jefferson, a people get pretty much the form of tax collection that they deserve.
Good luck with your 1040s.
