This Tax Season, The IRS May Be Feeling Your Pain

The IRS faces a $600 million cut to its budget for the rest of the current fiscal year, if congressional Republicans have their way.

The agency says such a large budget cut would hinder its tax-collection efforts, and that in turn could reduce revenues coming into the Treasury.

A Helpful Hint From The IRS

IRS/YouTube

Defenders of the IRS's budget say few, if any, other federal agencies give taxpayers as much bang for their buck. The IRS is, after all, the agency that brings in those federal dollars from the paychecks and cash boxes of American individuals and businesses.

In recent years, the IRS has tried to present a more friendly face to taxpayers, using everything from radio PSAs to social media and video spots to reach out.

One such video, posted on the IRS YouTube channel, even offers helpful advice for filers in the event of an audit. Though no one wants to be audited, those collection efforts do help the country by bringing in a lot of money.

"It's almost a direct correlation between the amount of money that's given to the IRS for enforcement activities, and what they bring in in extra money each year," says Chicago tax lawyer Robert McKenzie. "So, if you cut $600 million out of the IRS budget, and assuming it comes from the enforcement [activities], we could project that we will increase the deficit by about $6 billion."

IRS Commissioner Douglas Shulman is a bit more conservative. He told a House panel last week that the $600 million cut from his budget would translate to a $4 billion reduction in revenues to the government this year — still a significant bite, considering that the government is running a $1.5 trillion deficit this year.

But Republican Rep. Charles Boustany of Louisiana, whose subcommittee oversees the IRS, is skeptical.

Total Tax Revenues Vs. Spending

Total federal tax receipts and outlays, as a percentage of GDP.

Total revenues and outlays, from 1971

"I don't buy that, and I don't think that's really going to be the case," says Boustany. "Clearly the commissioner is interested in getting more money to the IRS, and I think that's going to be his goal. But in this tight budget situation, we're going to have to look at cuts across the board."

Rep. Lloyd Doggett (D-TX) agrees that all federal spending needs to be scrutinized. But he says the House-passed plan smacks of political payback.

"To reduce enforcement and revenue collection seems to follow a traditional Republican theme of always demonizing IRS, which is easy to do by starving it," says Doggett, "by assuring that it doesn't have the resources to be responsive to legitimate taxpayer concerns."

To be sure, the IRS has run afoul of Congress in the not-too-distant past. In the 1990s, lawmakers held hearings in which taxpayers recounted horror stories of IRS agents seizing their property and garnisheeing wages. Congress reined in what it perceived to be the agency's excesses. And this year, the IRS announced it would no longer file liens for tax debts under $10,000.

McKenzie, the Chicago tax attorney, is also a member of the IRS Advisory Counsel. He says there are still some rogue agents out there, but cutting the budget to get at them doesn't make much sense.

"I think that's bad policy," he says. "Because if you have 90 percent of the agents and revenue officers doing a good job, and 10 percent who may not be doing a good job — to cut the entire budget to get to that problem ... all you do is prolong the problem."

There is another funding fight over the IRS on the horizon. President Obama has proposed raising the agency's budget in the next fiscal year, in part to hire agents to implement the president's health care overhaul. Republicans see this as one of their options to block what they deride as "Obamacare" and are expected to push for further cuts in the agency's budget.

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