Obama proposes to exempt some IRS spending on enforcement from budget cap

by Linda Beale

Obama proposes to exempt some IRS spending on enforcement from budget cap

The 2011 debt ceiling compromise, known as the Budget Control Act, establishes automatic cuts in spending for various categories if no further deal is reached to overturn them.
In many ways, it might be ideal to allow the Budget Control Act to come into play. It would force significant reductions in the overall amount allocated to Defense, an area that has fed incessantly on revenues since Reagan’s priority on militarization, coupled with Bush II’s preemptive wars of choice in Afghanistan and Iraq. We need to cut military spending significantly, and it will not hurt the country’s defense to do so. (It may, however, crimp the high-flying styles of some military contractors. About time, I’d say.)

Further, the Budget Control Act explicitly protects Social Security and Medicare, so those programs won’t be curtailed in the process. A good thing, again, since it is important for the nation to see that the fearmongering about Social Security as “insolvent” is just that.
But there’s at least one category of spending that an across-the-board cut makes little sense for–the spending necessary to collect tax from deadbeat/scofflaw or criminal taxpayers. The IRS enforcement budget essentially is an investment in better tax compliance, and returns more dollars to the federal fisc than it takes out.

Obama has recognized that, and seeks to exempt $277 million of the IRS enforcement spending from the Budget Control Act’s cuts. See the discussion here at OMB Watch (Vol. 13, No. 4, Feb. 22, 2012).

One of the main objectives of President Obama’s fiscal year (FY) 2013 budget request for the Internal Revenue Service (IRS) is to reduce the “tax gap,” the difference between what taxpayers owe each year and what they actually pay. The president’s IRS budget request seeks funding increases for both taxpayer services and enforcement programs. Recognizing that a dollar spent on collecting revenue more than pays for itself, the Obama administration has proposed to exclude some IRS enforcement spending from the budget caps imposed by 2011’s debt ceiling deal (known as the Budget Control Act).
Among the enforcement programs the White House is recommending be increased to raise revenues are:

  • An additional $111 million to fight offshore tax evasion, which the IRS estimates will bring in $6.40 for every dollar invested by FY 2015
  • An increase of $39 million to improve international businesses’ compliance with the tax code …. The IRS estimates a return on investment of $8.80 per dollar invested
  • An additional $129 million to implement recent legislative tax changes, including new reporting requirements and certain provisions of the Affordable Care Act (ACA), which the IRS estimates will bring in $3.50 for every dollar invested
  • An increase of $88 million to implement the “Revenue Protection Strategy,” which allows the IRS to adjust a taxpayer’s refund if examiners catch errors. The IRS estimates this initiative will return $1.90 per dollar invested as soon as new hires reach their full potential in FY 2015
  • An additional $35 million to continue certifying tax preparers, which the IRS estimates will bring in $2.30 for every dollar invested by FY 2015

The IRS estimates that combined, these funding increases will bring in an additional $673 billion in FY 2013 alone, and, by FY 2015, an estimated $1.5 trillion in additional annual revenue.

Sounds reasonable. The Bush effort to cut back on IRS funding was a naked gambit for a weakened watchdog that would allow more corporate tax evasion. Enforcement has paid off considerably over the past two years, as the IRS’s effort to unveil offshore bank accounts of US taxpayers has led to significant numbers of taxpayers brining those assets back onto the tax rolls. Congress should recognize the reasonableness of this request, unless it is so besotted with campaign fever that it is willing to sacrifice sound legislation to ideological obstructionism.

crossposted with ataxingmatter