The National Taxpayer Advocate Nina Olson released her 2014 annual report this week. Amongst a host of interesting findings, including a wise recommendation to Congress to pass a Taxpayer Bill of Rights, a lead story has emerged: the IRS’s woeful customer service.
On top of 30-minute hold times, and an inability to answer tax law questions, “The IRS is unlikely to answer even half the telephone calls it receives.”
In the report, the Taxpayer Advocate points primarily to budget cuts, including a recent 17 percent reduction, as a major cause of these struggles.
Before getting right in to that issue, let’s point out the IRS earned the ire of Congressional Republicans by unfairly targeting conservative groups’ applications for tax-exempt status. If you want to serve taxpayers, focus on that, not playing political enforcer.
That said, it is likely true that the current tax code demands a sizeable agency to even attempt to properly administrate it.
Yet, it is not clear a tax enforcement arm of unlimited size and resources could properly administer a tax code as complex and incomprehensible as the current U.S. code. Just check NTU’s latest “Taxing Trend” study of tax complexity and you’ll see the code cost the economy $224 billion and 6.1 billion hours last year.
How big and costly would the IRS have to be to tackle not just that tax code, but enforce Obamacare, as well as chase down international taxpayers under the flawed FATCA regime?
The Taxpayer Advocate cites that pair of terrible policies as two major factors contributing to the IRS’s decay in service: “The combination of more tax returns, substantially more telephone calls, substantially more cases of tax-related refund fraud, and continual tax law changes, including implementation of the ACA and FATCA, have sharply increased the IRS’s workload.”
Add to those concerns, the interesting revelation that the agency is busier now, than they were in 2004 (their peak performance period according to the report): “The IRS is receiving 11% more returns from individuals, 18% more returns from business entities, and 70% more telephone calls than a decade ago.”
This point might not seem that significant at first, but the IRS has nearly the same budget as they did ten years ago – when the agency was providing peak service. A clear sign the growing powers of the agency are creating an unmanageable burden, and that good performance can be attained with a role similar to what the IRS had within the decade.
While more resources for the IRS might seem like a solution to some of the issues in this year’s report, a look at the bigger picture shows that paring back the tasks given to the IRS with Obamacare (if not repealing that law entirely), putting a stop to the absurd FATCA rules, and simplifying the code are the only ways to build a long-term situation where the IRS can do its job.
Taxpayers should not be forced to face the double-edged sword of financing an ever growing, all-powerful, IRS and the crushing burden of an out-of-control tax code.
Fortunately, shrinking that code would fix both problems – that’s the big lesson to take from this year’s Taxpayer Advocate Report.