My column today is very unusual. I am writing to both condemn and praise Congress. My disgust with our elected representatives focuses on their shabby treatment of the Internal Revenue Service (IRS) that will collect about $3.5 trillion for Uncle Sam this year. On the other hand, Congress deserves kudos for its current bipartisan effort to improve retirement legislation.
Why has Congress consistently reduced IRS appropriations since 2010 despite a more complicated tax code caused by the Affordable Care Act and numerous other tax changes? For 2010, Congress appropriated $13.9 billion for the IRS; for 2018 that number had dropped to $11.43 billion — a stunning 18 percent decline. This year the proposed level for IRS funding is no better — currently it is set at $11.62 billion in the House and only $11.26 billion in the Senate.
Today, the IRS has 18,000 fewer employees than it did nine years ago — a reduction of nearly 20 percent of its workforce. This year, only 38 percent of callers who phoned the IRS’s automated system got through after an average 48-minute wait. A private-sector company with that kind of service wouldn’t stay in business very long. (In President Trump’s 2020 IRS budget proposal, his goal is to have almost half of all calls to the IRS answered!)
However, the real problem isn’t the lousy IRS service. Given its lack of funding and reduced personnel, it is more and more unable to catch tax cheaters. In 2011, the chance of getting audited was one in 90, today it is one in 200. The IRS had over 14,000 auditors in 2010. Last year, that number was down to 9,510 — the lowest since 1953 when our economy was one-seventh of its current size.
For years, Congressional critics have claimed that IRS budgets cuts are counter-productive. Just 10 days ago, a group called Patriotic Millionaires released on its website a plea for increased IRS funding to catch tax cheats. It wrote: “This should be an easy decision to make, an increase in enforcement will quite literally pay for itself.”
It is estimated that there is a $400 billion difference between what taxpayers owe and what the IRS collects each year. Morris Pearl, Patriotic Millionaires Chair and former managing director at Blackrock, Inc., argues that “while it is easy to match up someone’s wages from their W2, it is much more difficult for the IRS to verify that business people are properly calculating their taxable income.”
Pearl is certainly angry as he rails against Congress’s refusal to properly fund the IRS. Increasing enforcement funding, he writes, “is such obviously good policy that it seems the only reason any lawmaker would resist is to protect criminal tax evaders who have a financial interest in keeping the IRS as weak as possible.”
One concrete example of the costly failure to properly fund the IRS is provided by ProPublica.org in “How the IRS Was Gutted” (Dec. 11, 2018). William Pfeil, a dedicated IRS employee, discovered in 2008 that foreign oil companies drilling in the Gulf of Mexico weren’t paying U.S. taxes as required by law. “Ultimately, he figures, he brought in more than $50 million in previously unpaid taxes over the next five years.”
He retired in 2013, disgusted about the continual “steady decreases in budget and resources.” After he left, the successful program that he headed was shut down. Pfiel said: “I don’t blame the IRS. I blame the Congress for not giving us the budget to do the job.”
How much does Congress’ failure to fund the IRS adequately cost American taxpayers? No one knows but “ProPublica estimates a toll of at least $18 billion every year, but the true cost could easily run tens of billions more.”
Another problem is that one-third of IRS employees will be eligible to retire by the end of next year. Given falling morale, it is expected that many of them will leave. In a rational world, with our huge budget deficits, it would seem logical that there would be bipartisan support for a beefed-up IRS that would collect more taxes. Of course, as we see almost everyday, political rationality is very rare.
However, there does seem to be one terrific bill working its way through Congress — the Setting Every Community up for Retirement Enhancement (SECURE) Act of 2019 — that most experts think will pass, given its broad bipartisan support. If it passes, it will be the most important retirement legislation since the Tax Relief Act of 1997 created the Roth-IRA. Indeed, it may be the only major piece of legislation passed this year, if infrastructure funding fails.
Last month, supported by both Republican and Democrat leaders, the House Way and Means Committee unanimously passed the SECURE Act that has five major provisions.
- Small Businesses — it eases their retirement plan requirements and allows them to band together to offer 401(k)s.
- Part-Time Workers — long-term part-time workers must be allowed to become eligible for retirement benefits.
- IRA Changes — the age for Required Minimum Distributions is increased from 70½ to 72 and workers older than 70½ would be no longer be banned from contributing to traditional IRAs.
- 529 plans — proceeds could be used for home schooling and to pay off student loans.
- Income Annuities — Clarifies the rules for allowing 401(k) plans to offer income annuities to retirees.
House Ways and Means Committee Chair Rep. Richard Neal (D-Mass.) lauded his committee for its overwhelming support of the SECURE Act: “We’re taking bold, bipartisan action to address our nation’s retirement crisis. Providing more, and easier ways to save allows workers to actively plan for their futures and avoid falling into poverty later in life.”
A similar bill, the Retirement and Security Act (RESA) sponsored by Sens. Charles Grassley (R-Iowa) and Ron Wyden (D-Oregon) was introduced in the Senate on May 5.
I would like to think Congressional passage of the new proposed retirement changes is a sure bet and that President Trump would have no reason to veto it. But I remain skeptical, given Congress’s past failures, as do most Americans.
Yet, voters are more hopeful about the current Congress than they have been. A Gallup Poll two months ago reported a 26 percent Congressional Approval rating, double the all-time November 2017 low of 13 percent. Maybe passage of both the SECURE Act and funding for badly-needed infrastructure spending will increase Congress’s approval rating to at least 30 percent. Let’s hope both make it through!