Senior Tax Legal Analyst
This Tax Day, delayed until July 15 to help taxpayers deal with the disruptions caused by COVID-19, should be a wake-up call for policymakers to invest in core government functions like the IRS. A decade of ill-advised funding cuts have constrained not just the IRS’ core function of enforcing taxpayer obligations, but also its capacity to deliver stimulus payments to struggling families during the pandemic and recession.
The CARES Act, of March, provided critical support for millions of households and tasked the IRS with rapidly delivering stimulus payments to bolster household incomes and shore up consumer demand. The IRS sent similar rebates during the Great Recession in 2008. But improvements to this year’s rebates, including expanded eligibility to more low-income households (with harmful exceptions for immigrant families), required the IRS to develop new approaches to reach households with which it has little or no contact because they earn little and typically don’t have to file tax returns. For instance, many beneficiaries of Social Security and certain other federal programs don’t typically file, so the IRS engaged in a massive coordination effort with other federal agencies to get automatic payments to all eligible individuals and prevent duplicative payments. To facilitate payments to households with little or no income and no connection to the federal tax system, the IRS created a new online tool and a “Get My Payment” portal.
IRS workers should be commended for delivering 160 million stimulus payments in just weeks, and with most staff working remotely. But the IRS faced tremendous challenges in doing so, including reported glitches with the online tools. These problems are hardly surprising since, according to the National Taxpayer Advocate, IRS software “dates to the Kennedy administration.” Around 365,000 eligible low-income people didn’t get the $500 payment for their dependent children even though they submitted their information by the deadline, IRS Commissioner Charles Rettig testified. Millions more eligible households risk missing out if the IRS can’t inform them that they’re eligible and help them take the required steps, which is why we created this application resource.
These administrative problems followed deep cuts to IRS funding since 2010, which not only hampered its ability to respond in a crisis, but have damaged its ability to pursue its core enforcement function. Since 2008, the IRS budget has shrunk by 14.9 percent in inflation-adjusted terms and its staff has shrunk by more than 20 percent. With less funding and fewer skilled revenue agents, the overall audit rate has fallen by 45 percent since 2010, with audit rates for large corporations and very high-income individuals falling even faster. A recent Congressional Budget Office report noted that, absent a major funding infusion, these trends will likely continue: “the 2020 coronavirus pandemic will reduce the IRS’s enforcement activities and pose new challenges for taxpayers in complying with tax laws.”
The CARES Act includes some funding for the IRS to perform added tasks during the pandemic, but such one-time funds can’t offset years of neglect. Policymakers should rebuild and modernize the IRS with a strong, multi-year funding commitment, enabling the IRS to fulfill its core functions but also be better prepared to address this and any future emergency.