When Steven Mnuchin, Donald Trump’s pick for secretary of the Treasury, was asked about tax reform in his confirmation hearing on Wednesday, he took things in a surprising direction: He suggested that the IRS needed a larger staff.
“I was particularly surprised, looking at the IRS numbers, that the IRS headcount has gone down quite dramatically, almost 30 percent over the last number of years,” Mnuchin said in response to a question from Sen. Orrin Hatch, a Utah Republican. “I don't think there's any other government agency that's gone down 30 percent, and especially for an agency that collects revenues, this is something that I'm concerned about.
“Now perhaps the IRS just started with way too many people,” Mnuchin added. But he suggested that “staffing of the IRS is an important part of fixing the tax gap.”
The response is surprising because the IRS has been a reliable whipping boy for the Republican majority in Congress. Since the GOP won control of the House of Representatives in 2010, funding for the IRS has plunged 17 percent and IRS enforcement staffing has been cut by 23 percent, according to calculations from the Center on Budget and Policy Priorities.
Over that same period, the number of tax returns filed increased by 7 percent, so the IRS is doing more work with a lot fewer people.
The IRS isn’t popular with the American public — after all, no one likes paying taxes — so cutting its budget may have been a political winner. Yet from a budget perspective, cutting IRS funding can be counterproductive. IRS spending isn’t like other government spending: If Congress cuts the IRS’s budget, the result can be an even bigger decline in government revenue as more people evade taxes. Mnuchin’s predecessor, Jacob Lew, estimated in 2013 that every dollar in IRS funding generates an additional $6 in government revenue.
And as Mnuchin pointed out, the costs of under-funding the IRS go beyond lost revenues. “I’m concerned about the lack of first-rate technology at the IRS, the issue of making sure that we protect the American public's privacy when they give information to the IRS, cybersecurity around that, and also customer service for the many hardworking Americans that are paying taxes,” Mnuchin told Hatch.
For years, the IRS has struggled to deal with a persistent problem of criminals using identity theft to steal the tax refunds of law-abiding taxpayers. The IRS has taken some steps to combat the problem, but it could surely do more if it had more resources to work with.