Slashing IRS budget might feel good, but it’s bad
There is generally an assumption that when faced with economic decisionmaking, people act in a self-interested manner. Said less artfully, we act on our “animal spirits.”
People self-select into professions. That is, no one is forced to become a CPA or attorney specializing in tax law. So it is at least theoretically possible that those who self-select into the practice of tax law are systematically different than others.
But on the important issue of self-interest I do not believe that is so. I have never seen any evidence of it. So let’s begin with a brief discussion of self-interest.
Those with inadequate training in economics assume that pursuit of self-interest means selfishness. I do not believe that is so, nor do I believe economic theory suggests that.
Self-interest would suggest that we use our freedom to pursue those things that bring us satisfaction, enjoyment, happiness, or whatever other word you might think is appropriate.
One of the more popular things that members of CPA firms and law firms do is to participate in some type of community service event that the firm organizes. It may be the only pursuit that allows the firm to show photographs of smiling faces of employees on their website.
Volunteer work in the community is done because it satisfies the selfinterest of those who serve as volunteers. They get a satisfaction that cannot be obtained by other means.
I start with this statement because I am always perplexed when I am told that CPAs such as myself (1) want a weakened IRS to allow us to push aggressive tax ideas to clients in exchange for higher fees, and (2) want increasing complexity in the tax laws to force others to rely on us to make sense of those laws.
Neither of these statements is true. Selfinterest of CPAs includes a desire to live in a country that, as former Treasury Secretary William Simon said, has a tax law that looks like it was designed on purpose.
Self-interest also includes a desire to deal fairly with that tax law, even when acting as an advocate of a client, and making sure that the government has enforcement resources so others also deal fairly with that tax law.
On the first point, I will simply say that I have had literally hundreds of conversations with CPAs over the years that advocate for a simpler system of tax laws. CPAs do know that economic transactions are complex enough that even a simpler system will not eliminate the role of a talented tax adviser.
On the second point, I just read an article on the continued efforts of the Congress to slash the budget of the IRS. These efforts represent a terrible thing for our country.
Tax advisers quoted in the article, including enrolled agents, CPAs and attorneys, all agreed that IRS budget cuts are a terrible idea. We are the ones who deal with the IRS more than anyone else, and we understand the effects of these cuts.
Representative comments include: “It baffles me the IRS is not (better) funded when … (it) brings in 90 percent of the money needed to fund the government,” and “The IRS has been tasked with doing more and more … with less and less.”
Since 2010, the IRS budget has been cut by 18 percent. Individual tax filings since then are up 7 percent, but IRS personnel is down by 14 percent, including a 23 percent reduction in enforcement personnel.
Individual return audits have dropped from 1 in 90 to 1 in 140 from 2010 to 2016. Audits of those with more than $1 million in income have dropped from 1 in 8 to 1 in 18 during the same time.
I realize that some people think reducing IRS budgets and personnel is a good thing. They won’t find a lot of company among those who actually deal with the tax laws year round.
Congress can debate how to spend federal money and how much money to spend. But we have to spend money for the common good — this is our country, and the IRS simply fills the needed role of collecting tax revenues. Gutting the IRS for selfinterest doesn’t serve the public interest.