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President Obama hopes to boost IRS budget, tax revenue

The National Debt Clock hangs near an office of the Internal Revenue Service (IRS) on July 26, 2011 in New York. How much money does the government lose when it slashes the IRS budget?

Jeremy Hobson: Well, it's already March, which means we're less than six weeks away from tax day. And the IRS is gonna have to do more with less this year when it comes to processing all those returns. They've had their budget cut, but President Obama has proposed giving the IRS an 8 percent budget boost in the hopes of bringing in more revenue to the government.

Our Washington bureau chief John Dimsdale reports.


John Dimsdale: IRS budget cuts over the past two years are just part of the across the board belt tightening designed to rein in the federal deficit.  

Colleen Kelley Cutting the IRS will increase the deficit.  That's a fact.

Colleen Kelley is the president of the National Treasury Employees Union, representing IRS workers.  With fewer auditors chasing down tax scofflaws, Kelley says revenue will decline.  By one government estimate, every extra dollar invested in the IRS returns nearly $4.50 to the Treasury.  

The IRS's taxpayer advocate, Nina Olson, in her annual report this year said the service has become underfunded and overworked.  

Nina Olson The IRS's workload has increased a lot over the last few years.  That's a combination of Congress passing an average of one tax law change a day.  In addition some of these new programs are disbursement programs like the first time homebuyer credit, which are very challenging to the IRS to administer.

The result is worse service. Olson says three out of ten taxpayers who phone in for help, never get thru.  That hurts voluntary compliance -- also cutting into the government's take.  

But hiring more IRS workers comes at a price, says Eugene Steurele.  He wrote a book about the IRS budget 20 years ago.  Today, he keeps tabs on tax policy at the Urban Institute.

Eugene SteureleWhen you put more people into IRS you do increase the revenues of government because they're going to be able to audit and track down more people.  But you actually don't increase national income.  In fact you could argue you decrease it a little because more people policing what's going on in society doesn't really add to the output of society.

A better way to raise more money he says would be simplify tax laws. That could boost savings at the IRS, which would need fewer agents to enforce less complicated rules.

In Washington, I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.
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