Friday, March 12, 2010

The IRS deserves more credit than it gets

Excerpts from George Washington University Law Prof. Neil Buchanan's excellent essay:
Is the IRS the Most Trustworthy Agency in the Country? Even Republicans Seem to Think So:

[I]f one looks carefully at the role that the IRS is repeatedly asked to play in our society, it is evident that politicians across the political spectrum at least implicitly understand that the people who enforce our tax laws are uniquely capable professionals who do their work extremely well. Moreover, politically-motivated attacks on the IRS, especially calls to shut down the agency entirely, are simplistic and dangerous. We need to have an agency to collect taxes, and we should be glad that we have one that is as good as ours is.

Putting Social Policy Into Action Through the Tax Code: A Bipartisan Strategy

In response to an uptick in inflation in the early 1970's, President Nixon imposed a "wage-price freeze," intended to stop the momentum of price increases that threatened the long-term health of the economy. This policy change required the White House to create a new administrative structure to deal with the complexities of price controls, which had not been imposed since World War II.

With time short and a pressing need to find capable, trustworthy, and experienced personnel, the President turned to what might seem an unlikely agency: the Internal Revenue Service. The new program was, in fact, administered to a significant degree by IRS employees "on loan" from their home agency. Although those government workers were not trained in (nor did they have any experience with) the nuances of price controls, their financial and accounting expertise – and, perhaps most importantly, their experience in dealing firmly but fairly with special pleading – made them the best choice for the President's needs.

This example nicely illustrates the kind of implicit trust that IRS employees have earned.


Whom Do You Trust With Difficult Work? The Best Workers

It is no wonder, then, that even the most anti-IRS Members of Congress rarely even think about how much their favored policies rely on the expertise of the IRS. While no Congressperson may have stood up and said, "I want to run this program through the tax system because I respect and trust the IRS so much," their actions speak volumes. Even if some in Congress happily bash the IRS in their speeches, they are evidently not so worried about the agency that they are willing to pass up the political advantage of calling their spending programs "tax cuts."

The use of the tax code to subsidize behavior, moreover, is not limited to small-bore items like those listed above. Nor, for that matter, is the general strategy of using the IRS to administer important social programs a modern idea. As a nation, for example, we have been dedicated for decades to the ideal that individual homeownership is a worthy goal that should be as universal as possible. We have always tried to make that goal a reality, and we have done so almost exclusively through the tax code.


Healthcare could also have been subsidized directly through a spending program. Rather than exempting employer-paid health insurance premiums from income tax, we could simply send people checks to help offset their costs. All of the other tax benefits associated with health savings accounts and countless other partial benefits are not "naturally" part of the tax system. We have simply grown accustomed to treating them that way.

In each of these cases, we have decided to provide the subsidies through the tax system. IRS employees are thus asked, for example, to ponder what Congress meant when it allowed a tax deduction for certain medical expenses, and defined medical expenses as "amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body," or what Congress wanted to say when it allowed a special tax benefit for those who sold their homes "by reason of a change in place of employment, health, or … unforeseen circumstances."

To call these provisions ambiguous is a laughable understatement. Even so, the IRS has been soldiering on over the years, having been ordered by Congress to administer these and other obscure provisions. If we want to reduce the reach of the IRS (or eliminate it entirely), then we had better be prepared to think about who will pick up the slack.


In other words, the IRS currently carries out many difficult and thankless duties that would not go away even if we moved those duties outside of the IRS. If some would like to reinvent the wheel, squandering the expertise and experience of our current IRS professionals, and spending billions of dollars to start a new tax agency, then they should say as much in clear and unambiguous terms.


It would be foolish to describe any organization – public or private – as perfect. Yet it remains true that the IRS is an agency that has been saddled with extraordinarily difficult work, and exposed to public scorn and ridicule (and worse), and yet it efficiently carries out an impressively broad range of the policy choices that emerge from our political system. Seriously changing the IRS's role (or eliminating it entirely) would not only be pointless, but expensive and self-defeating as well.

Neil H. Buchanan, J.D. Ph. D. (economics), is a Visiting Scholar at Cornell Law School, an Associate Professor at The George Washington University Law School, and a former economics professor.

I heartily endorse the points made by Professor Buchanan, and his full essay is very much worth reading in its entirety.

IRS employees, like all of us, are human and imperfect, and the IRS certainly recognizes that it has room for improvement (and I certainly have some ideas for that!), but it deserves far more credit than it gets for doing the best it can with the outrageously heavy load of tasks Congress has heaped upon it.

You know how the saying goes: "If you want something done, ask a busy person." That seems to be what the President and Congress have done in heaping more and more of running public policy through the IRS.

1 comment:

  1. Agreed. People hate the IRS because people hate paying taxes.

    Has the IRS screwed up? Many times but so have most groups/companies that are a big size.