The IRS and Overdue Taxes
IN the last presidential election, George Bush ridiculed Michael Dukakis's plan to go after uncollected taxes in order to reduce the budget deficit. He had no intention, Bush said, of unleasing ``a conventional-force army of IRS agents into everybody's kitchen.'' This, with his ``read my lips'' pledge, seemed a continuation of Ronald Reagan's colorful invective directed against the tax system. Four years earlier, President Reagan had called that system ``unfair, unworkable, and unproductive,'' and he said that ``the nation ought to take [it] out and string it up.'' Obviously, we can't take the system out and lynch it, nor even many of its representatives. A democratic people can only try to make the tax laws and administration as equitable and undisruptive as possible, which means inviting everyone to pay their share. Perhaps that is why President Bush has come around to a position not unlike Dukakis's. Earlier this year he proposed a $635 million increase in the IRS budget, a portion of it to be used in collecting over $61 billion of owed but uncollected taxes.
Attention paid to these uncollected taxes is overdue, not just because they add up to a large figure. The arrears also reflect the degree to which the agency's enforcement position has eroded in the last decade. When I joined the IRS in 1982 as a revenue officer, uncollected taxes totaled $21 billion, and even then some observers of the agency predicted a breakdown unless some drastic measures were taken, including upgrading the computer systems and hiring more auditors and collections officers.
Steps were taken to improve enforcement, but they proved to be only palliatives. Problems with the new computer systems at the service centers resulted in a processing logjam in the 1986 tax season, leading to lost returns and late refunds and probably the worst year for the IRS in its recent history. As soon as the new system was on line, it was deemed inadequate. As for the new collections employees, high turnover meant that many of them left the service before they could bring much experience to bear on the difficult task of separating people from their dollars.
Salaries for most new employees ran somewhat less than $17,000, sometimes quite a bit less, and this figure has not improved greatly since 1982. Of course, low salaries and ostensibly low training costs make hiring collectors seem like a good investment. But low salaries also mean poor incentives, and there were additional problems of mismanagement, inequities in work and rewards, and low morale, all of which came out in last year's congressional hearings on the IRS.
This picture of an inept agency makes Congress reluctant to spend more on the IRS. Investigators from the House Ways and Means Committee said last year that the service's management information system is so outdated that the agency scarcely knows what it is owed. Rep. J.J. Pickle (D) of Texas, who heads the subcommittee that oversees the IRS, said, ``It's not practical to assume they are going to get more revenue when they can't even collect the money already owed to the government.''
There is much evidence to support Representative Pickle's case. Over the last three years the IRS budget has actually risen by 27 percent, and collections-staff levels by 13 percent. In spite of this, uncollected taxes are at the current surprising level - surprising because in 1982, at least, we were emerging from a recession. A recession in 1990 or 1991 would make things in collections much worse.
The hostility or neglect of two administrations and the bureaucratic bungling of the agency itself are two aspects of the current collections picture, but there is a third. That is the extent of the public's willingness to file and pay all of their taxes on time, their ``voluntary compliance.'' Compliance is not just a matter of the perceived efficiency or inefficiency of the Internal Revenue Service - it is also a measure of the public's support for the aims and programs of its government. It can be argued that, like voter participation, the compliance of taxpayers is a measure of Washington's legitimacy. If that is so, the government has more to balance than its financial books.