The Internal Revenue Service earlier this month acknowledged having sent $4 billion in fraudulent tax refunds in 2012. It was embarrassing.
Fortunately, there’s more to the story. The IRS also prevented $12 billion in tax refunds to people who seek refunds using a variety of fraudulent methods. That’s up from the $8 billion prevented in 2011.
Of the $4 billion in fraudulent refunds, about 1,000 checks went to two addresses, one in Lithuania and the other in Shanghai. Not surprisingly, the most common method is to steal Social Security numbers from Americans who aren’t required to file tax returns, such as children and the elderly. Another method, using Social Security numbers of employed Americans, is simply to file before they do. The legitimate filer will eventually get his or her refund, but probably not in time for the vacation the refund check was supposed to pay for.
The IRS would be even more successful in cracking down on fraud if congressional budget-cutting zeal hadn’t taken its toll on the agency. In the last three years, even with the onset of Obamacare, the IRS has had to cut 8,000 jobs.
The IRS might just be one federal agency among many, but. it’s an agency whose purposes include ensuring that American taxpayers — including the ones who try to skip out on their taxes to the detriment of their fellow citizens — pay what the law requires.
Yet cuts in successive years have increased the so-called “tax gap” to $450 billion a year. That’s how much of what is due goes uncollected. Most of it stems from the willingness of some Americans to play their fellow citizens — the millions who earnestly, if reluctantly pay what they owe — for saps.
To what degree boosting IRS funding — or at least restoring it to previous levels — would restore public confidence in the government is uncertain, but it could only help.
The IRS has not been immune to scandal, as allegations that it singled out extremely conservative (and liberal) organizations for enforcement have indicated. But further cutting its funding, or even eliminating the IRS, as some Republicans advocate, would be foolish in the extreme.
Given that the IRS more than pays for itself — it generates roughly $200 in federal revenue for every dollar it is allotted by Congress — and given the tax gap of almost half a trillion dollars, our nation would benefit from increasing its investment in the IRS.