Is an Understaffed IRS Leading to Lax Tax Enforcement?

September 21, 2021 Topic: IRS Blog Brand: Politics Tags: IRSTaxesWealth InequalityFraud Prevention

Is an Understaffed IRS Leading to Lax Tax Enforcement?

The Treasury Department has issued a report, warning that an understaffed IRS is causing problems in enforcing tax collection.


Like most things in America, the IRS has become politically contentious. In recent negotiations over spending packages, Democrats have called for greater IRS enforcement as a method for paying for the spending, while anti-tax Republicans have attacked the IRS itself.

President Joe Biden, for instance, has called for a doubling in the amount of IRS employees over the next ten years, while also stepping up enforcement itself.


“Financial institutions house a lot of valuable information, and indeed already provide third-party reports to the IRS,” a report this spring said. “Leveraging this information—rather than introducing new requirements for taxpayers—is a proven way to improve compliance.”

Now, the Treasury Department has issued another report, warning that an understaffed IRS is causing problems in enforcing tax collection, and widening the gap between taxes owed and taxes paid.

Natasha Sarin, the Treasury Department’s Deputy Assistant Secretary for Economic Policy, wrote a piece on Treasury’s website called "The Case For a Robust Attack on the Tax Gap”

“A well-functioning tax system requires that everyone pays the taxes they owe,” she writes. “Today, the ‘tax gap'—the difference between taxes that are owed and collected—totals around $600 billion annually and will mean approximately $7 trillion of lost tax revenue over the next decade. The sheer magnitude of lost revenue is striking: it is equal to 3 percent of GDP, or all the income taxes paid by the lowest earning 90 percent of taxpayers.”

It’s also a problem when it comes to the wealth gap.

“The tax gap can be a major source of inequity. Today’s tax code contains two sets of rules: one for regular wage and salary workers who report virtually all the income they earn; and another for wealthy taxpayers, who are often able to avoid a large share of the taxes they owe. As Table 1 demonstrates, estimates from academic researchers suggest that more than $160 billion lost annually is from taxes that top 1 percent choose not to pay.”

Sarin also laid out some reasons for why that has happened.

“Currently, an under-staffed IRS, with outdated technology, is unable to collect 15 percent of taxes that are owed, and a lack of resources means that audit rates have fallen across the board, but they’ve decreased more in the last decade for high earners than for Earned Income Tax Credit (EITC) recipients. For the IRS to appropriately enforce the tax laws against high earners and large corporations, it needs funding to hire and train revenue agents who can decipher their thousands of pages of sophisticated tax filings. It also needs access to information about opaque income streams—like proprietorship and partnership income—that accrue disproportionately to high-earners.”

Stephen Silver, a technology writer for The National Interest, is a journalist, essayist and film critic, who is also a contributor to The Philadelphia Inquirer, Philly Voice, Philadelphia Weekly, the Jewish Telegraphic Agency, Living Life Fearless, Backstage magazine, Broad Street Review and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. Follow him on Twitter at @StephenSilver.

Image: Reuters.