Friday, March 22, 2019

Gutting the IRS -- Is This Republican White House Different?

by Neil H. Buchanan

The nation's tax collector is always in a politically precarious position.  Anti-tax demagoguery is forever in the air, including ahistorical references to the Boston Tea Party (which was actually a protest against a tax break for businesses, not an uprising against paying taxes) along with moronic comments about "keeping the government's hand out of your pocket" and similar rhetoric.

Meanwhile, the people who understand the importance of the Internal Revenue Service are often hesitant to defend it, because there is simply no political upside to doing so.

And then there is the Republican Party, which claims to favor law and order but is suddenly tolerant of moral relativism when it comes to people not paying their taxes (and also when it comes to businesses that decide not to comply with labor, consumer, and environmental laws).

Even as they have succeeded in passing tax cut after tax cut, including 2017's regressive mess (which was a travesty both as a matter of substance and process), all in the name of redistributing to the rich from everyone else, Republicans are more than happy to help rich people and businesses engage in do-it-yourself tax cuts by having the government look the other way.

The most obvious method of doing this is to handcuff the tax cops.  Who cares what the law says if there is no one there to enforce it?

All of which makes it surprising that Donald Trump's recently announced federal budget would slightly increase the IRS's budget.  What is going on here?

In December 2018, ProPublica issued a depressing report detailing the success that Republicans have had in gutting the IRS, a story that was picked up by the editors of The New York Times and other major outlets.  As The Times's editorial put it: "The rich are different: They’re more likely to cheat."  And the rich and the businesses that they own and run are increasingly able to get away with cheating because of IRS budget cuts.

In inflation-adjusted terms, the IRS's budget has been cut by about 20 percent over the past eight years (which, by no coincidence at all, is the most recent time period during which Republicans controlled the House of Representatives).  Morale at the Service is harder to find than Donald Trump's tax returns, and employees are leaving at record rates.  As ProPublica put it:
"As of last year, the IRS had 9,510 auditors. That’s down a third from 2010. The last time the IRS had fewer than 10,000 revenue agents was 1953, when the economy was a seventh of its current size. And the IRS is still shrinking. Almost a third of its remaining employees will be eligible to retire in the next year, and with morale plummeting, many of them will."
The audit rate is down by more than 40 percent, and the pursuit of people who do not even submit a return that could be audited has astonishingly fallen from 2.1 million to only 362,000 from 2011 to 2018 (an 83 percent decline).  Little wonder that roughly twenty percent of legally owed taxes are not being collected (again, vastly disproportionately favoring the wealthy)

Even before ProPublica's excellent report, it was hardly a secret that the IRS had suffered budget cuts.   At a hearing last Spring, the IRS's acting (of course) commissioner told a Senate committee that budget cuts would cause the Service to cut back on customer service.

Why is this happening?  Again, there is the long-term "Read my lips: No new taxes!" nonsense that the Republicans have made a central element of their identity.  And then there was the years-long failed effort to prove that the Obama Administration had used the IRS to "punish" right-wing political groups.  That non-scandal became an excuse for Republicans to punish the entire IRS by bleeding it of resources -- again, even though doing so was clearly going to reduce tax collections.  That result was, as the saying goes, a feature rather than a bug.

Having cut the IRS's budget, Republicans would then hypocritically turn around and scream at IRS officials for failing to provide good customer service. At one hearing of the House Ways & Means Committee in 2015 (chaired by Paul Ryan, of course), the IRS's then-commissioner explained that enforcement, taxpayer service, and support for information technology are the areas where the IRS has budgetary discretion (as opposed to congressional mandates to, for example, aggressively audit poor people's earned-income tax credit applications).

Therefore, when its budget was cut, the IRS had to cut from one or more of those areas.  The leaders of the Service made cuts across all three areas and tried to balance the cuts.  Had they not cut from customer service, they would have had to cut even more from enforcement.  Guess what the Republicans wanted?

All of which brings us to the new Trump proposal, which would increase the IRS's budget from $11.3 billion to $11.5 billion from fiscal years 2019 to 2020.  As the National Treasury Employees Union -- one of the only entities that has a direct interest in defending the IRS and its budget -- points out, that is a pittance and does virtually nothing to reverse the Republicans' near-decade-long jihad against the tax agency.

Although that is true, it is genuinely puzzling that the Trump team proposed any increase at all.  The budget proposal, after all, includes a 25 percent cut to the EPA's budget and takes double-digit whacks at disfavored agencies like the State Department, Housing and Urban Development, Labor (no surprise), and even Transportation (so much for Trump's interesting in infrastructure investment).  Yet the IRS gets bumped up.  Hmmm.

This is even more baffling because everyone knows that this budget proposal is merely for show, the standard "dead on arrival" document that the White House is using to signal its priorities.  Knowing that nothing they propose will ever happen, why not cut the IRS budget by, say, 50 percent while zeroing out the EPA and doubling Defense?  This is, after all, purely a play to the cheap seats.

One might argue that Trump's budget writers were trying to show that they are being reasonable.  That, however, is about as off-brand as one could imagine in Trump World.  He doubles down on everything that excites his base, and that base almost completely overlaps with the anti-tax types who have been driving the Republican Party rightward for decades.  Why not throw some more IRS blood into their water tank?

The details of the IRS budget proposal are interesting.  The Administration says that its budget "proposes $11.5 billion in base funding for IRS to ensure that IRS can fulfill its core tax filing season responsibilities, continue critical IT modernization efforts, and provide acceptable levels of taxpayer service," and The Hill reports that "some Republicans have been open to giving the IRS a funding boost more recently because they want the agency to smoothly implement the 2017 tax law."  Perhaps most tellingly, the IRS has been having trouble recovering "from the record 35-day partial government shutdown that ended in January."

These tidbits could suggest that the IRS is being given money to cover up Trump/Republican screw-ups (both their terrible and slapdash tax cut and their shutdown).  However, "[t]he new budget document calls for about $14.5 billion in program integrity cap adjustment spending [which would exempt IRS enforcement funds from budget caps] over 10 years, which the administration estimates could generate about $47 billion in additional revenue," an argument that is truly inconsistent with the Republicans' long-term assault on IRS enforcement.

One could imagine that Treasury Secretary Steve Mnuchin, who is in no way qualified for the job that he holds, is nonetheless a representative of the Wall Street wing of the party.  For example, Mnuchin has been blunt about the need for a "clean" increase in the debt ceiling, putting him at odds with the party's crowded bloc that pledges never to increase the debt ceiling or only to do so in exchange for additional spending cuts.  Businesses know that a debt ceiling-related constitutional crisis would be economically disastrous, and Mnuchin speaks for them.

That might explain what Trump is proposing regarding the IRS.  Similarly, the observation that protecting enforcement allocations from budget caps pays off at a three-to-one rate (a $47 billion revenue gain as a result of $14.5 billion in spending) might be a nod to the real-world importance of actually enforcing the tax law, if for no other reason than it makes it easier to justify Republicans' remaining tax cut wish-list by opening up budget space.

Please forgive my skepticism in thinking that Mnuchin or anyone else is actually forcing sanity checks in Donald Trump's world, but even if he is, it still makes little sense why the budget proposal is the place to do so.  Trump could have proposed huge cuts and then had Mnuchin later agree to tiny increases, with Mnuchin making bland statements about being reasonable.  (Trump could not do that, of course, because he would surely view it as weakness.)

Ultimately, there might be no sensible explanation of this.  And in the end, what really matters is the actual appropriation of funds by Congress (assuming that Trump does not shut the government down again by vetoing the next bill that contains no funding for his wall this September).  But as empty political theater goes, this is more than a bit of a deviation from what now counts as normal for Trump and the Republicans.

3 comments:

Joe said...

I guess the appointment of Stephen Moore to the Federal Reserve Board might at some point be commented on this space. One economic professor:

"Here's my challenge to any informed voter of any partisan leaning: Call your favorite economist. Whether they're left, right, libertarian or socialist, none of them will endorse Stephen Moore for the Fed. He's manifestly unqualified."

David Ricardo said...

To call him 'manifestly unqualified' is to overstate his qualifications.

Neil H. Buchanan said...

Yes, nothing more to say about Moore. With shameless hacks like Kudlow and Hassett already in tow, and complete unknowns like Mnuchin and Peter Navarro (and the departed Gary Cohn) filling spots that would normally go to people like Glenn Hubbard (who is a different kind of hack, but at least qualified — and smart enough to stay away from this White House), Trump now scrapes the very bottom of the barrel by tapping Moore.