IRS Budget Cuts Will Hurt Taxpayers, Says OMB

Less Service, Less Security, Less Revenue

IRS Woes
IRS Budget Cuts Would Hurt Taxpayers, OMB Says. Tetra Images

The Obama administration’s top budget analyst has warned Congress that cutting the Internal Revenue Service’s budget would end up costing the federal government far more than it would save.

In a letter to the House Appropriations Committee, Office of Management and Budget (OMB) Director Shaun Donovan said that further cuts to tax agency’s budget would only worsen the IRS’ already “unacceptable” levels of taxpayer services and increase the risk of theft of taxpayers’ personal information.

“Additional funding cuts would come on top of the drastic cuts already enacted since 2010,” thus leaving the IRS with a lower operating budget than it had in 1991 “when there were 38 million fewer individual taxpayers and a far less complicated tax code,” wrote Donovan.

[ Staff Cuts Destroying IRS Taxpayer Service ]

The proposed IRS budget cuts are part of the 2016 Financial Services and General Government Appropriations bill and would leave the IRS with a $10.1 billion 2016 budget, a cut of $838 million below the fiscal year 2015 level and $2.8 billion below the President Obama’s budget request.​

The House Appropriations Committee approved the bill for consideration by the full House by party-line vote of 30-20 on June 17.

“Every day, Americans are making tough decisions about their own budgets and rightfully expect federal agencies to do the same,” said House Financial Services Subcommittee Chairman Ander Crenshaw (R-Florida) adding, that the bill “holds the Administration and the Internal Revenue Service more accountable to the taxpayer.”

How OMB Says the Cuts Will Hurt Taxpayers

In his letter, OMB Director Donovan warned lawmakers that the budget cuts would greatly reduce the IRS’ ability to collect delinquent and underpaid taxes, thus increasing the U.S. tax gap.

“As a result of funding cuts that have already occurred to date, IRS enforcement revenues this year are expected to be $7 billion to $8 billion lower than if 2010 funding levels had been sustained,” he wrote.

“These are taxes that are already owed under current law, but will go uncollected because the IRS lacks the resources needed to track down tax cheats and make sure large multinational corporations, the wealthiest, and ordinary American workers all play by the same rules.”

“During FY 2015, as a result of funding cuts already enacted, the IRS will lose approximately 1,800 key enforcement personnel that it cannot replace,” added Donovan. “These individuals are vital to ensuring that the tax code is administered fairly.”

Further budget cuts would also force the IRS to provide an even worse level of service to taxpayers than it is now, which Donovan admits is as bad as it has ever been.

“This fiscal year, the IRS will answer fewer than half as many taxpayer calls as in FY 2010, with less than 4 out of every 10 callers reaching a live assistor and an estimated 28 million calls going unanswered,” he wrote. “So far this fiscal year, more than 11 million callers have either been automatically disconnected by the system due to unmanageable call volume or chose to hang up while they were on hold.”

Last but far from least, Donovan warned lawmakers that deeper budget cuts would further reduce the IRS’ ability to protect taxpayers’ personal information from hackers.

According to Donovan’s letter, the IRS is already three upgrades to its security software behind and a “lack of support for the IRS’s technology infrastructure would mean further deferral of cybersecurity and infrastructure upgrades, jeopardizing the strong defenses IRS needs,” he wrote.

“The bill would also bring a halt to progress on key projects, including expansion of the specialized Criminal Investigation Identity Theft Clearinghouse that processes identity theft leads and other improvements, which would enable the IRS to detect and quickly resolve tax return anomalies that can signal identity theft,” Donovan concluded.

So this is prime example of how the federal budget process really works. The president requests a lot of money for each Executive Branch agency. Then, based more on politics than sound financial policy, Congress gives some agencies less and some agencies more than the president requested.

And that system is why the U.S. government will be going $474 billion in the hole in 2016.