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Comment by chrisbennet | Hacker News Reader

The IRS is starved for funds. The powers at be (wealthy) wouldn't benefit from aggressive enforcement of tax law.

https://www.propublica.org/article/how-the-irs-was-gutted

Larry Summers wrote about this last month at Washington Post https://www.washingtonpost.com/opinions/yes-our-tax-system-n...

Those people taking "first time home buyers" tax break are not the same ones lobbying to throttle IRS funding. Follow the money.

Sorry, but it's not the "wealthy" who are robbing us blind. There are tax cheats across all socio-economic levels.

For example a full 50 percent of people who took the "first time home buyers tax credit" did so fraudulently:

See: https://www.npr.org/templates/story/story.php?storyId=114008...

"In a recent audit, George's office highlighted nearly $500 million in homebuyer tax credits claimed by people who don't appear to qualify."

and

https://media.npr.org/assets/news/2009/10/22/tigta.pdf

People in prison who didn't even own houses were applying for and getting the credit:

https://www.npr.org/templates/story/story.php?storyId=128053...

https://www.eitc.irs.gov/tax-preparer-toolkit/frequently-ask...

IRS has data that 26 percent are, to put it nicely, claimed "in error". No wealthy people are doing this. It's impossible.

$500 million is less than 2 dollars per person. If I forget to declare the 6 dollars that my neighbor paid me to feed his dog one day last week, I have committed more tax fraud than you have just brought up.

You either have no capacity to understand economics at the scale of the US government, or you're intentionally misrepresenting it.

Each individual committing this fraud has stolen between 2 and 8 thousand dollars. I don't think that's OK.

All of the data indicate that the wealthy commit the bulk of tax fraud. They are less honest per capita, and defraud the government of much more money overall, than the poor do.

I'd like to see your data. By percentage compliance, the IRS estimates about 60% of self-employed and small businesses underreport. Mom and pop shopowners, hairdressers, bodegas, repairmen, etc, are grossly underreporting. We shouldn't look the other way at this. All of us and every income level, should comply with the law.

The most insane part, for the alleged "fiscal conservatives" who push for gutting the IRS, is the crazy ROI on IRS funding. Estimates range $4-$8 revenue per dollar spent. At that rate of return, basically every company would be frothing at the mouth to invest.

Taking money by fiat is obviously profitable, so this is not a particularly noteworthy metric. In fact, it stinks of the same myopic overfinancialization that has contributed to the mess over on Wall St.

If the IRS wants to increase compliance and reduce their workload, the straightforward way is to stop dancing around this illusion that their system is in any way optional, and start creating straightforward prescriptive systems rather than just issuing a myriad of disparate prohibitions with steep penalties for making a mistake. The current philosophy requires the IRS to do the work to interpret all these privately-defined systems, allows rent-seeking companies to nickle and dime captive middle-class taxpayers, and practically begs wealthy people to hire lawyers to come up with novel interpretations to skirt the intent.

Source for the $4-$8 revenue per dollar estimate? Don't forget that there's a difference between average return, and marginal revenue. More funding should be given if the marginal revenue is larger than the funding. The average revenue takes no part in this decision.

Thanks for making me look, the numbers are even more extreme in some cases:

https://www.finance.senate.gov/ranking-members-news/irs-budg...

> IRS Research Division estimates in the 2003 GAO report, however, placed returns for activities such as tax enforcement at more than ten – and in some cases more than 20 – dollars collected for every dollar spent. Phone calls to follow up on tax debts owed were estimated to return 13 dollars for every dollar spent. Audits by mail returned as much as 11 dollars for every dollar spent. Using the overall rate of a four to one return, this year’s $100 million budget cut translates to a $400 million loss.

Imagine 20 dollars per dollar spent, that's the type of unicorn investment that basically every VC hunts for.

I would imagine that tax enforcement would be one of those things with diminishing returns.

Obviously we can afford to diminish a 20.0 BCA and still make tons of money, but I wonder what the actual limit of this would be.

There are two schools of thought:

1) The fiscal conservatives should argue that as long as revenues increase more than expenses (better than 1:1), we should increase funding to the IRS. After that, the expense outweighs the direct reward.

2) There's a huge moral hazard when we don't enforce tax laws. People become more emboldened to cheat on taxes. Increased funding should also rein in future frauds. So even if you spend $2 to collect $1, if that deters future fraud it is possibly worth more than the $2 spent

There’s also a cost to honest taxpayers who are false positive audited that must not be ignored. Having been through it last year for tax year 2015, I and my Enrolled Agent spent close to 75 hours combined for a net result of around $500 increase in 2015 tax owed and a corresponding offset of the same amount in 2016 because I got the timing wrong on a payment that hit Jan 2016 instead of Dec 2015.

That likely cost the IRS a comparable, if not greater, amount of hours. Increasing the funding is not beneficial when it results in more audits like mine.

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