This article was published by The McAlvany Intelligence Advisor on Monday, February 27, 2017:
For proof, look what’s happened to the IRS. A combination of pique and outrage has caused Congress to cut the agency’s budget each year since 2010, except for a slight uptick last year. As a consequence, it now employs fewer than 80,000 people, down from 94,722 in 2010, with its enforcement arm suffering the most, losing 30 percent of its field agents.
The consequence was predictable. In 2010, the agency audited one out of every 90 individual income tax returns. Last year, it was one out of every 119. This year, it’ll be closer to just one out of every 143. And that’s the average. For those filing without a Schedule C (business) or other forms (i.e., tax shelters, farm income), it’ll be just one out of every 330.
Even high-income earners (over $1 million a year) can breathe easier, at least for the moment. In 2015, the agency audited nearly 10 out of every 100 returns while this year it’ll only be able to audit fewer than six. Business audits have also been declining. Four years ago, the IRS audited nearly 10,000 businesses with net worths of more than $10 million, while last year that number dropped to just 6,453.
Its wounds have been self-inflicted. Last year, IRS Commissioner John Koskinen repeatedly lied to Congress and almost got himself impeached for it. Lois Lerner barely escaped similar treatment after her branch profiled Tea Party groups and then lied about that.
Corruption at the IRS goes back decades. Recent examples include the 2003 decision by the 9th Circuit Court of Appeals, which found IRS lawyers Kenneth McWade and William Sims guilty of blackmailing taxpayers in order to obtain testimony against other taxpayers. They consequently were disbarred. In May 2015, the agency announced that its computer systems had been hacked and that as a result the private tax information of more than 100,000 citizens had been stolen. In August that year, the IRS said that the breach was far larger than originally thought, including 220,000 additional private files that had been compromised. A few months later, in February 2016, the IRS admitted that the previous disclosures were in error: more than 700,000 Social Security numbers and other “sensitive” information had been stolen.
But Koskinen is gone and Steve Mnuchin has taken his place, thanks to a near party-line vote in the Senate. Mnuchin is an insider with little interest in things like liberty. Bloomberg covered his background:
Before joining Trump, Mnuchin rose through the kind of elite institutions the president-elect spent his campaign vilifying. Mnuchin was tapped into Yale’s Skull and Bones secret society, became a Goldman Sachs partner like his father before him, ran a hedge fund, worked with George Soros, funded Hollywood blockbusters, and bought a failed bank, IndyMac, with billionaires including John Paulson. They renamed it OneWest, drew protests for foreclosing on U.S. borrowers, and ultimately generated considerable profits, selling the business last year to CIT Group Inc. for $3.4 billion.
Speaking of profits, Mnuchin has made out nicely, enjoying a net worth estimated at $500 million.
Mnuchin knows that for every 35 cents that the IRS spends in collection efforts, it brings in $100. He knows that whistleblowers have brought in billions. He knows that the new program to revoke passports of those taxpayers owing more than $50,000 is likely to force them to pay up. He knows that for every $1 it spends on face-to-face audits with taxpayers the agency reaps $4 in return. He knows that for every dollar of new revenue it receives from Congress, it could generate between $4 and $6 dollars in new revenue. He knows that Trump is a businessman very familiar with such numbers. Consequently Mnuchin thinks he can make a “return-on-investment” case that could result in a significant increase in the IRS’s current budget of $11 billion.
That’s likely to be a tough sell, as many in Congress still harbor resentment against the IRS as well as constituents’ experiences with the agency, causing them to pressure their representatives to continue to cut its budget.
If the agency’s budget continues to shrink (despite Trump and his new deputy in charge at Treasury), the next agency in line for similar treatment would likely be the ATF. After all, if it works so well with the IRS, why not apply the same remedy there?
The Wall Street Journal: IRS Audits of Individuals Drop for Fifth Straight Year
The Wall Street Journal: Mnuchin Laments Reductions in IRS Workforce