Belated Thoughts on the IRS Non-Scandal

Posted by Bob Lord

One question that received little focus during the entire IRS scandal was whether it had anything to do with the IRS' core mission — to collect tax revenue.

On the surface, the answer would be that it had nothing to do with collection of tax revenue. The funny thing about the tea party organizations that had applied for 501(c)(4) status is that they had done so to avoid disclosure, not to avoid tax. The tax advantage of 501(c)(4) status is that the income of the organization (interest, dividends, etc) is exempt from tax. But political orgainzations spend contributions shortly after receiving them. The actual income they generate through investment is negligible. So, the IRS efforts to root out their applications did not stand to increase tax collections.

Beneath the surface, however, I'm afraid, the main point of the IRS scandal was to hinder tax collection, and all the allegations made against the Obama administrartion were designed to attract attention and little else.

Here's why: When funding to the IRS goes down, so does federal revenue, because reduced funding chokes IRS enforcement efforts. The numbers are stunning. In its report, The Wrongheaded Quest to Shrink the IRS, Citizens for Tax Justice Reports:

Also, cutting the IRS's budget would actually increase the deficit and cost taxpayers more money than it would save. The primary reason – which is pretty obvious when you think about it – is that every dollar the IRS spends on activities like audits, liens, and seizing property brings in more than $10 in revenue. In addition, the IRS is currently making substantial long term investments in its enforcement, modernization and management systems, for which the federal government (i.e., us taxpayers) receives a $200 return for every dollar invested.

So as far as IRS funding was concerned, was the sequestration about the deficit? Obvisously not.

Getting back to the IRS non-scandal, consider the effect it will have on measures to increase IRS funding. Remember the coverage of IRS employees learning dance moves on the taxpayers' dime? Did that have anything to do with the Obama administration? No. Might it have an effect on the willingness of Reps and Senators to vote for additional IRS funding, or vote against a decrease in IRS funding? Think about the ads that would run against such a pol: A clip of the IRS dance lessons, with the message that Senator X voted to spend your tax dollars that way.

Who benefits most from lack of enforcement by the IRS? Certainly not wage earners whose main federal tax obligation, employment tax, comes straight out of their paychecks. But corporations and wealthy individuals have everything to gain from failed IRS enforcement efforts.

And that's what the IRS non-scandal may well have been all about.

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