Cost savings at the IRS come at a high price
We’re continuing to follow reports that the Donald Trump administration has fired more than 6,000 IRS workers, many of them in collections and enforcement.
The administration said it’s doing so to cut costs and because it says many IRS employees aren’t fully occupied.
But job cuts at the IRS will come with their own costs. That’s because the money the IRS spends on tax collection helps it pull in even more money from taxpayers.
A few years ago, Nathan Hendren, an economics professor at the Massachusetts Institute of Technology, found that when the IRS audits somebody, it costs the agency $6,000 to $7,000 on average. And when it audits people with higher incomes?
“Those audits get a little more complicated. And we end up spending just over $10,000 on those audits,” said Hendren.
But he also looked at how much the government receives when the IRS does an audit. Turns out that for people on the bottom half of the income spectrum, the IRS pretty much breaks even.
And for those with the highest incomes? “Every dollar we spend delivers more than $12 in revenue back to the U.S. Treasury,” said Hendren.
He said that’s not only because audits pull in lost revenue. It’s also because of what happens next.
“Those people end up changing their ways going forward, and you deliver back a lot more revenue to the government even in the future years.”
Another factor pushing up the IRS’ return on investment: the basic taxpayer services it provides, said Nina Olson, executive director of the Center for Taxpayer Rights.
“Everything from the IRS publishing publications and forms to answering the phones on tax law questions to processing returns,” Olson said.
Olson said those services help the IRS take in revenue by helping taxpayers who have questions, unique situations or even a dispute over a tax return.
“People need to be there to work through those issues, so the return can go its merry way into the system to be processed,” said Olson.
Cutting staff will slow down those services, she said, making it harder for taxpayers to get the help they need.
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