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How much should we increase funding at the IRS?

Write-Off: The Tax Blog

Many are calling for increased funding at the IRS. But, how much is appropriate? I don’t know the answer. But, one thing comes to mind—let’s just try something, and, see what happens. Congress (at least some version of Congress, i.e. a republican controlled Congress) knows it has the political will to cut the IRS budget (unlike budgets of other government organizations). And, unlike other parts of the government, the IRS has pretty measurable outcomes. If we cut defense spending and we don’t get invaded by a hostile government because they are afraid of our military, we don’t really know if the cut hurt the effectiveness of the military, or, if it was the case that no one felt like invading us. But, the IRS has a mission that can pretty easily be measured, in dollars collected. Let’s increase their budget for 3 years, and see what happens. So, how much extra?

Well. I am not sure. But, some food for thought. President Biden is hoping to pass a $2 trillion dollar spending bill. What if included in that was a doubling of the IRS budget (lets ignore any IRS-related spending it already has). How much would the spending bill cost? Well, $2 trillion. Let’s say it is a $2.0 trillion bill. How much would adding the $10ish billion it would cost to double the IRS budget? It would still be a $2.0 trillion dollar bill. If we were talking about a $2.00 trillion dollar spending package (which no one is), then, indeed, we would increase that to $2.01 trillion. This is to say, $2,000,000,000,000.00 increases to $2,010,000,000,000.00. Presented that way, doubling the IRS budget just does not look that big, does it? Partly that is because of the massiveness of what will be one of the largest spending packages in world history. But, partly, it is because the IRS budget is not that big to begin with, relative to other things we spend money on.

To be clear, I am not suggesting that everything below X billion dollars should fall below the materiality threshold of the government and we should not even think about it. I am also not suggesting we double the budget of the IRS. What I am saying is that in a time when the government seems very comfortable spending like drunken sailors on payday, it might as well try spending a tiny fraction of that gigantic payout on increased IRS funding, because the effectiveness of such spending is measurable, and, some Congresses have the political will to take that money back from the IRS if it didn’t work. Finally, in my view, if it does work, more tax revenue for a given marginal tax rate means tax rates could plausibly be lower, decreasing the distortions taxes have on our economy.

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