Posts Tagged ‘Internal Revenue Service’

I’m delighted that so many presidential candidates are talking about partial tax reform and I’ve specifically analyzed the plans put forth by Marco Rubio, Rand Paul, Jeb Bush, and Donald Trump.

These proposals all make the tax code less punitive, and that would be good news for job creation, growth, and American competitiveness.

But that doesn’t mean any of them are perfect. They all fall short of the pure flat tax, which is the gold standard for full tax reform. Another problem is that these proposals won’t be plausible or sustainable unless unaccompanied by some prudent plans to restrain the growth of federal spending.

Today, though, I want to focus on another shortcoming. The various plans need to be augmented by long-overdue restrictions on the IRS, which has become and abusive and rogue bureaucracy.

Consider a few examples.

These horror stories provide plenty of evidence that the internal revenue service should have its wings clipped.

But let’s add another straw to the camel’s back. The tax collection agency in the midst of an audit fight with Microsoft and the IRS is making a mockery of its own rules and flagrantly abusing the company’s legal rights.

This is bad news for one of America’s most successful firms, but it also is creating a very dangerous precedent that could victimize many other companies – large and small – in the future.

Writing for The Hill, Andy Quinlan of the Center for Freedom and Prosperity highlights some of the IRS’s most offensive actions.

First, the IRS is flouting its own rules as part of its persecution of Microsoft.

Government officials, counter to federal law, are trying to bully the company into extending an audit process that should have ended over 6 years ago. …Federal law provides a three-year time period for the completion of an audit, yet IRS officials have been digging through the company’s files for over nine years.

Second, the IRS won’t even tell the company how much money it wants!

Seattle-based Microsoft had to force a hearing on this matter because the IRS refused to submit a final tax bill to Microsoft for a dispute over taxes owed from 2004 to 2006. The IRS has been dragging out this audit process for close to a decade, and continues to pressure the company to sign waivers extending the audit infinitum.

Third, the IRS has been whining about supposedly inadequate budgets, but the bureaucrats are paying a private law firm millions of dollars to participate in this never-ending audit.

In 2014, the government in an unprecedented move hired Quinn Emanuel, a L.A.-based litigation firm to help audit the company. The IRS has billions in budget, teams of lawyers and accountants, yet they decided spend $2.2 million dollars outsourcing their legal team to lawyers that charge in excess of $1000 an hour.  It should come as no shock to anyone following the IRS scandal that Quinn Emanuel is chock full of lawyers who are also large contributors to the party in power.

Fourth, the IRS’s rogue behavior may become standard practice if the bureaucrats don’t face any repercussions for stepping over the line.

This fight actually has little to do with Microsoft. It has everything to do with the prospect of the IRS abusing power, wasting taxpayer money and setting dangerous precedents for enforcement against small businesses. …The actions of the IRS that put this matter into court threatens to set a dangerous precedent on the power of the federal government with regard to tax issues. Congress needs to protect citizens against IRS overreach, and now a potential new procedure that will allow private tax information to be shared with outside law firms.

Wow, what a damning indictment against a vindictive bureaucracy.

And while Microsoft is a big company with plenty of money to defend itself, this is still outrageous. Particularly since the IRS will employ these thuggish tactics against less powerful taxpayers if it isn’t slapped down for by either Congress or the courts.

By the way, I should say something about the underlying dispute. The IRS is not happy about the prices that Microsoft charged when doing intra-firm sales between the parent company and foreign subsidiaries.

Yet if the bureaucrats really think Microsoft abused the “transfer pricing” rules, then the IRS should come up with its own estimate and – if necessary – they can go to court to see who’s right.

For what it’s worth, I suspect the IRS isn’t presenting Microsoft with a bill precisely because the bureaucrats ultimately wouldn’t prevail in a legal fight. The agency probably hopes a never-ending audit eventually will force the company to voluntarily over-pay just to end the torture.

Since I’m a policy wonk, I can’t resist noting that the only reason this kind of dispute even exists is because the United States has the highest corporate tax rate in the entire world. So companies naturally seek to maximize the income they earn in other nations (sort of like entrepreneurs and investors decide it’s better to do business in low-tax states such as Texas rather than fiscal hellholes such as Illinois).

And there’s nothing wrong – legally or ethically – with taxpayers choosing not to overpay the federal government.

The IRS can, of course, ask politicians to change the law if their goal is to grab more money. But as explained by Brian McNicoll in a column for the Washington Times, it shouldn’t try to confiscate more loot with endless harassment and dubious tactics.

If Microsoft’s business strategies are a problem for the IRS, it is up to Congress to change the tax law. But as long as those strategies are legal, no one should question Microsoft for doing what it can to limit its tax obligation. …there is reason Congress gives the IRS three years — not eight and certainly not carte blanche to go on indefinitely. …If the IRS has something on Microsoft, by all means bring it forward. But if it doesn’t, it needs to close the books on this near-decade of harassment and send Microsoft a bill for its taxes.

Returning to our main point, this is why tax reform should be accompanied by reforms to rein in the IRS’s improper behavior.

P.S. They haven’t put forth many details, but some candidates have indicated support for the kind of radical tax reform that would de-fang the IRS. Rick Santorum, Ben Carson, and John Kasich have all stated that they like the flat tax. And Mike Huckabee embraces a national sales tax to replace the current tax code.

And if there’s wholesale replacement of the internal revenue code, then a lot of the problems with the IRS automatically disappear.

P.P.S. Since we’re criticizing the IRS, I can’t resist sharing some oldies but goodies.

P.P.P.S. And since I’m digging through my archives, here’s my collection of IRS humor, including a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a sale on 1040-form toilet paper (a real product), a song about the tax agency, the IRS’s version of the quadratic formula, and (my favorite) a joke about a Rabbi and an IRS agent.

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Remember Sleepless in Seattle, the 1993 romantic comedy starring Tom Hanks and Meg Ryan?

Well, there should be a remake of that film entitled Clueless in Washington. But it wouldn’t be romantic and it wouldn’t be a comedy.

Though there would be a laughable aspect to this film, because it would be about an editorial writer at the Washington Post trying to convince people to feel sorry for the IRS. Here’s some of what Stephen Stromberg wrote on Wednesday.

Congress has done some dumb things. One of the dumbest is the GOP’s penny-wise-pound-foolish campaign to defund the Internal Revenue Service. …its mindless tantrum against the IRS has produced for taxpayers: a tax season that was “by far the worst in memory,” according to the Taxpayer Advocate Service, an agency watchdog.

Before I share any more of the article, I should point out that the “Taxpayer Advocate Service” isn’t a watchdog. It should be renamed the “Government Advocate Service” since its main goal is to increase the IRS’s budget.

But I’m digressing. Let’s continue with Mr. Stromberg’s love letter to tax collectors.

The underlying problem is that Congress has asked the IRS to do a lot more, such as administering a critical piece of Obamacare, but the GOP Congress won’t give the agency the funding it needs to do its work. …But good luck convincing Republicans to fix the IRS’s entirely predictable and avoidable problems. Not when that would mean restraining the impulse to act on anti-tax orthodoxy, blind populist anger and scandal-mongering about the IRS mistreating conservatives. In fact, Republicans want to double down on their nonsense budgeting, proposing deep cuts to the IRS last month.

Oops, time for another correction.

Stromberg is cherry picking data to imply that the IRS budget has been savaged.

If you look at the long-run data, however, you’ll see that the IRS now has almost twice as much money to run its operations as it did a few decades ago.

And that’s based on inflation-adjusted dollars, so we have a very fair apples-to-apples comparison.

Stromberg also wants us to sympathize with the bureaucrats because the tax code has been made more complex.

The underlying irrationality is the same: The IRS doesn’t write the tax code or health-care law, but the agency must apply these policies and engage with people affected by them, so it is an easy scapegoat.

Part of this passage is correct, and I’ve specifically pointed out that the tax code is mind-numbingly complex and that politicians deserve an overwhelming share of the blame for this sorry state of affairs.

That being said, the IRS goes beyond the law to make the system worse, as we saw when it imposed a regulation that put foreign tax law above American tax law. And when it arbitrarily rewrote the Obamacare legislation to enable additional subsidies.

In other words, it deserves to be scapegoated.

But there’s a bigger issue, one that Stromberg never even addresses. Why should we give more money to a bureaucracy that manages to find plenty of resources to do bad things?

Never forget, after all, that this is the bureaucracy that – in an odious display of bias – interfered with the electoral process by targeting the President’s opponents.

And then awarded bonuses to itself for this corrupt behavior!

Even more outrageous, the Washington Examiner reports today that the IRS still hasn’t cleaned up its act.

A series of new revelations Wednesday and Thursday put the Internal Revenue Service back under fire for its alleged efforts to curtail…conservative nonprofits. …the Government Accountability Office uncovered evidence that holes in the tax agency’s procedure for selecting nonprofit groups to be audited could allow bias to seep into the process. …lawmakers exposed the lack of safeguards that could prevent IRS officials from going after groups with which they disagreed. Meanwhile, the conservative watchdog Judicial Watch released documents Wednesday that suggested the IRS targeted the donors of certain tax-exempt organizations.

Does this sound like a bureaucracy that deserves more of our money?

If you’re still not sure how to answer, consider the fact that the IRS also somehow has enough money in its budget to engage in the disgusting “asset forfeiture” racket.

The Wall Street Journal recently opined on this scandal.

…a pair of new horror stories show why Americans dread any interaction with the vindictive tax man. Khalid Quran owns a small business in Greenville, North Carolina. He emigrated to the U.S. in 1997, opened a convenience store near a local airport, and worked long hours to give his four children more opportunity. After nearly two decades, Mr. Quran had saved $150,000 for retirement. Then in 2014 the IRS seized his bank account because he had made withdrawals that raised red flags under “structuring” laws that require banks to report transactions of more than $10,000. Mr. Quran had made transactions below that limit.

So even though Mr. Quran did nothing illegal and even though it’s legal to make deposits of less than $10,000, the IRS stole his money.

Just like money was stolen from the Dehko family.

Here’s the other example from the WSJ.

Maryland dairy farmer Randy Sowers…had $62,936.04 seized from his bank account because of the pattern of his deposits, though the money was all legally earned. …Mr. Sowers told his story to a local newspaper…a lawyer for Mr. Sowers asked…“why he is being treated differently.” Mr. Cassella replied that the other forfeiture target “did not give an interview to the press.” So much for equal treatment under the law.

Yes, you read correctly. If you have the temerity to expose the IRS’s reprehensible actions, the government will try to punish you more severely.

Even though the only wrongdoing that ever happened was the IRS’s confiscation of money in the first place!

So let’s celebrate the fact that the IRS is being subjected to some modest but long-overdue belt-tightening.

Notwithstanding Mr. Stromberg’s column, the IRS is not a praiseworthy organization. And many of the bureaucrats at the agency deserve our disdain.

The bottom line is that IRS budget cuts show that Republicans sometimes do the right thing.

And maybe if there are continued cuts and the current tax system actually does become unenforceable at some point, maybe politicians could be convinced to replace the corrupt internal revenue code with a simple and fair flat tax.

P.S. Clueless in Washington won’t be the only remake out of DC if President Obama decides to go Hollywood after 2016. Indeed, I suspect his acting career would be more successful than mine.

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I’m not a fan of the IRS or it’s Commissioner, a partisan Democrat named John Koskinen. The agency has become politicized, interfering with America’s political process. Needless to say, I’m not shedding tears that the bureaucracy is no longer getting big budget increases.

By contrast, I oftentimes applaud Senator Ted Cruz. His shutdown fight against Obamacare was a net plus. He was one of the few 2016 candidates who took a strong stand against cronyism in Iowa. And he manages to retain a sense of humor in the fight against big government.

So it’s with considerable chagrin that I feel compelled to admit that IRS boss made a good point, at least from a technical perspective, when he criticized Senator Cruz on the topic of the flat tax.

Here’s the background. A story in Bloomberg quotes Senator Cruz about his goal for tax reform.

“Instead of a tax code that crushes innovation, that imposes burdens on families struggling to make ends meet, imagine a simple flat tax that lets every American fill out his or her taxes on a post card. Imagine abolishing the IRS,” Cruz said.

Now here’s an excerpt from a Politico report about Mr. Koskinen’s response.

IRS Commissioner John Koskinen poked holes in Republican presidential candidate Ted Cruz’s plan to abolish the IRS and create a simple flat tax so taxpayers could file their taxes on a postcard. Koskinen pointed out that even if taxpayers were to file their taxes on “a small card,” someone would have to collect the money and make sure the numbers filled out are actually correct. “You can call [tax collectors] something else than the IRS if that makes you feel better, but basically someone has to follow through on all of that,” Koskinen told reporters today after a speech at the National Press Club.

Koskinen is right. So long as the federal government intends to extract more than $3 trillion from taxpayers, there will be a tax-collection agency. That’s true even if you have a flat tax or a national sales tax.

Sure, you can rename the IRS, or even require states to collect the revenue instead, but none of that changes the fact that some coercive body will exist to take our money.

That being said, Cruz’s overall point surely is correct. The IRS in a flat tax world would be largely de-fanged. Indeed, the Tax Foundation estimated several years ago that compliance costs would drop by more than 94 percent if we replaced the internal revenue code with a flat tax. And, as pointed out in this video, the tax code today is even more complex, so the savings now presumably would be even larger.

So Koskinen may be technically correct, but only because he is focusing the conversation on the narrow issue of whether government will still have a tax-enforcement body.

But Cruz is correct on the big-picture issue of whether the IRS as it exists today will no longer exist.

Since we’re on the topic of tax reform, Amity Shlaes and Matthew Denhart, both with the Calvin Coolidge Presidential Foundation, have a column in today’s Wall Street Journal that is somewhat critical of the Rubio-Lee tax reform plan.

The authors start by pointing out that the defining characteristic of supply-side economics is lower marginal tax rates on productive behavior (work, saving, investment, risk-taking, entrepreneurship).

Signaling opportunity throughout the tax code has long been the basis of the philosophy known as supply-side economics, or “Reaganomics.” Reaganomics treats even individual wage earners as entrepreneurs. The marginal rate to which a worker is subject under the progressive tax schedule is crucial. A higher rate on the next dollar a worker earns discourages him from working more. The highest tax bracket is especially important as top earners produce the most and innovate the most. …That top marginal rate also functions as a symbol of how society rewards enterprise.

Their unhappiness with Rubio-Lee is due to the fact that their proposal does not contain big rate reductions for labor income to match the very good rate reductions for business and investment income.

…on the personal side their proposal drops the top marginal rate on individual income by a puny 4.6 percentage points, to 35% from 39.6%. …What’s more, Rubio-Lee lowers tax thresholds drastically. Singles with taxable income as low as $75,000 find themselves entering the 35% top bracket; for couples the top rate applies after $150,000. Currently, individuals don’t hit the 35% bracket until $411,501, and the same holds for couples.

So why aren’t there big reductions in tax rates for households to match the very good reforms for businesses? The answer, at least in part, is that “Rubio-Lee also raises the child credit” and this consumes a lot of money, in effect crowding out lower marginal tax rates.

As a result, you get big economic benefits from the reforms to business taxation, but the child credits don’t have any impact on incentives to create wealth, expand jobs, or boost income.

The nonpartisan Tax Foundation recently estimated that Rubio-Lee would increase economic growth so that by 2025 the economy would be 15% larger than otherwise, almost entirely due to business tax cuts. The effect of the child credit on growth is reckoned at zero. 

But imagine if Rubio-Lee took their good tax reform plan and made it better by replacing the child credit with lower rates? And then made it even better by getting rid of additional tax preferences such as the healthcare exclusion?

Shlaes and Denhart quote me in their column as pointing out that if Rubio and Lee made their plan into something akin to the flat tax, the tax rate could be under 20 percent.

Dan Mitchell of the Cato Institute notes that if Rubio-Lee dropped all the preferences it contains, old and new, the plan could drop its top income-tax rate to 20% or lower.

I confess that I don’t have up-to-date estimates to confirm my assertion, but the Clinton Treasury Department back in 1996 estimated that the flat tax rate in a revenue-neutral world would be 20.8 percent.

But since the Rubio-Lee plan is a very large tax cut, amounting to more than $4 trillion over 10 years, combining that amount of tax relief with the flat tax surely would allow the rate to be well below 20 percent.

By the way, none of this should be interpreted to suggest that Rubio-Lee is bad tax policy. It’s a huge improvement over the current system. As I wrote last month, it’s a very good tax reform plan. It is especially good about fixing some of the worst features of the current tax code, such as worldwide taxation, depreciation, and double taxation.

But that doesn’t mean it is as good as the flat tax, which does everything good in Rubio-Lee, but also has a low rate for households and fewer tax preferences.

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With tax day fast approaching, it’s time to write about our good friends at the Internal Revenue Service.

One of the new traditions at the IRS is an annual release of tax scams. It’s know as the “dirty dozen” list, and while it may exist mostly as a publicity stunt, it does contain some useful advice.

And that’s true of this year’s version. But I worry that the IRS is looking at a few trees and missing the forest.

The Washington Examiner was kind enough to let me write a cover story on the “dirty dozen” list. Here’s my effort to add some context to the discussion.

…our friends at the Internal Revenue Service have a relatively new tradition of providing an annual list of 12 “tax scams” that taxpayers should avoid. It’s an odd collection, comprised of both recommendations that taxpayers protect themselves from fraud, as well as admonitions that taxpayers should be fully obedient to all IRS demands. Unsurprisingly, the list contains no warnings about the needless complexity and punitive nature of the tax code. Nor does the IRS say anything about how taxpayers lose the presumption of innocence if there’s any sort of conflict with the tax agency. Perhaps most important, there’s no acknowledgement from the IRS that many of the dirty dozen scams only exist because of bad tax policy.

In the article, I list each scam and make a few observations.

But I think my most useful comments came at the end of my piece.

…maybe the tax system wouldn’t engender so much hostility and disrespect if it was simple, transparent, fair, and conducive to growth. And that may be the big-picture lesson to learn as we conclude our analysis. When the income tax was first imposed back in 1913, the top tax rate was only 7 percent, the tax form was only two pages, and the tax code was easily understandable. But now that 100 years have gone by, the tax system has become a mess, like a ship encrusted with so many barnacles that it can no longer function. …the bottom line is that the biggest scam is the entire internal revenue code. The winners are the lobbyists, politicians, bureaucrats and insiders. The losers are America’s workers, investors, and consumers.

In other words, if we actually want a humane and sensible system, we should throw the current tax code in the garbage and replace it with a simple and fair flat tax.

And that’s exactly the message I shared in this interview with C-Span.

Here are a few of the points from the discussion that are worth emphasizing.

The current tax code benefits Washington insiders, not the American people.

But I’m not optimistic about fixing the tax code, in part because the crowd in DC would lose some power.

We’ll never get good tax reform unless there’s genuine entitlement reform to restrain the growing burden of government spending.

The flat tax and national sales tax are basically different sides of the same coin.

If you want class-warfare tax rates on the rich, keep in mind that high rates don’t necessarily translate into more revenue.

The no-tax-hike pledge is a vital and necessary component of a strategy to restrain government.

Itemized deductions benefit the rich, not the poor.

If you care about poor people, focus on growth rather than inequality.

We should mimic Hong Kong and Singapore, not France and Greece.

P.S. I wrote last week that the Senate GOP put together a budget that is surprisingly good, both in content and presentation. A reader since reminded me that the Chairman of the Senate Budget Committee was a sponsor of the “Penny Plan,” which would lower non-interest outlays by 1 percent per year.

Since Mitchell’s Golden Rule simply requires that spending grow by less than the private sector, Senator Enzi’s Penny Plan obviously passes with flying colors.

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Like many taxpayers, I personally get upset with the Internal Revenue Service when I file my taxes.

But I probably get angrier than the average taxpayer. That’s because I have first-hand knowledge of the waste and fraud in the federal budget, so it galls me that so much of my income is being diverted to the open sewer of Washington.

But I also want to be fair. It’s politicians who have created our monstrous tax code. And it’s politicians who have created the bloated spending programs that undermine our prosperity.

So they deserve most of the blame.

That being said, we shouldn’t let the IRS off the hook.

Never forget, after all, that this is the bureaucracy that – in a disgusting display of bias – interfered with the electoral process by targeting the President’s opponents.

And then awarded bonuses to itself for this corrupt behavior!

So when Neil Cavuto asked me whether the IRS deserved a bigger budget, you can see I was not exactly sympathetic.

There are two points from the interview that deserve a bit of elaboration.

First, I pointed out that the IRS budget is far bigger than it was 30 years ago, even after adjusting for inflation.

So the notion that the tax collectors are suffering from “savage” budget cuts is utter nonsense.

Not surprisingly, the IRS and its defenders like to compare today’s budget with the amount that was spent right after the faux stimulus, when every bureaucracy was gorging on other people’s money.

But as I explained in the interview, that’s very misleading.

Second, we have the bigger issue of how to deal with an ever-more sclerotic tax code and and never-ending demands for more money out of Washington.

Assuming one thinks turning America into Greece is an acceptable or desirable outcome, the IRS will need more money.

But this is precisely why I said at the end of the interview that we should say no. Simply stated, giving the IRS a bigger budget almost certainly means a continuation of bad policy.

But maybe, just maybe, if the IRS budget is held in check, the politicians will conclude that we need tax reform and spending restraint. Remember, when all other options are exhausted, politicians sometimes do the right thing.

By the way, I’m not the only person who is upset. George Will also is irked with the Internal Revenue Service and wrote a powerful indictment of the corrupt bureaucracy for the Washington Post.

He starts by observing that the slimy and biased Lois Lerner will probably get away with her crimes thanks to Obama Administration stonewalling and obstruction of justice.

 Lois G. Lerner…, as head of the IRS tax-exempt organizations division, directed the suppression of conservative advocacy groups by delaying and denying them the exempt status that was swiftly given to comparable liberal groups. …through dilatory and incomplete responses to subpoenas, and unresponsive answers to congressional questions…Lerner’s name now has an indelible Nixonian stain, but there probably will be no prosecution. If the administration’s stonewalling continues as the statute of limitations clock ticks, Roskam says, “She will get away with it.” …Many thousands of Lerner’s e-mails that supposedly were irretrievably lost have been found, but not released. The Justice Department’s investigation, which was entrusted to a political appointee who was a generous contributor to Barack Obama’s campaign, is a stone in the stone wall.

It’s discouraging that Ms. Lerner won’t be held accountable for criminal actions, but Will points out that at least Congress has the ability to engage in real oversight to hopefully deter further misbehavior.

One place to begin is with the evidence — anecdotal but, in the context of proven IRS corruption, convincing — of other possibly punitive IRS behavior toward Republican contributors and other conservative activists. This justifies examining the IRS’s audit selection process.  …Next, there should be hearings into the illegal disclosure of taxpayer information about conservative individuals and groups to the media and to liberal officials and groups.

And just in case anyone is tempted to feel sorry for the IRS, don’t forget that the bureaucracy continues to disregard the law.

Or, in some cases, to arbitrarily change the law.

…the IRS’s lawlessness has extended to its role in implementing the Affordable Care Act. The act says that federal subsidies shall be distributed by the IRS to persons who buy insurance through exchanges “established by the State.” …The court probably will rule that the IRS acted contrary to law. If so, the IRS certainly will not have acted contrary to its pattern of corruption in the service of the current administration.

Yup, he nailed it. A corrupt agency serving the interests of a corrupt White House.

P.S. Since we’re talking about taxation today, here’s a video from the oldie-but-goodie collection.

I can’t vouch for the veracity, but I gather this fellow was very upset by high property taxes.

As you might guess, my sympathies are with the Marquis de Maussabre.

Just as I applaud French entrepreneurs, American companies, Italian boat owners, Spanish movie patrons (and porn aficionados), California citizens, Greek shop owners, Facebook millionaires, Norwegian butter buyers, New York taxpayers, Bulgarian smokers, foreign cab drivers, New Jersey residents, Australian film stars, and everyone else who does their part to limit the amount of tax revenue flowing to governments.

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I can’t help but wonder whether the song made famous by The Grinch Who Stole Christmas should be the theme song for the Internal Revenue Service. After all, that bureaucracy is “as cuddly as a cactus” and “as charming as an eel.”

And it appears that having “the tender sweetness of a seasick crocodile” is not a good strategy for big budget increases.

Indeed, it appears that working as an adjunct of the Obama reelection campaign has backfired on the IRS. One of the good results of the “cromnibus” negotiations is that GOPers actually took revenge on the IRS for political interference. The bureaucracy is actually going to get less money next year. In other words, a real budget cut, not one of those fake Washington cuts that occur when spending doesn’t increase as fast as desired.

Not surprisingly, the big Democratic donor who now serves as IRS Commissioner isn’t very happy about this development.

The Hill reports that the John Koskinen is claiming that his agency’s budget has been cut too much…and he’s saying that the bureaucrats will make taxpayers suffer as a result.

After absorbing a $346 million budget cut, IRS officials are warning taxpayers not to expect their phone calls to get answered or their refunds to be delivered quickly. Employees shouldn’t count on overtime pay, or for empty staff slots to be filled. And lawmakers seeking to reduce the deficit should assume the agency will collect far less revenue than it could have.  “We’re well beyond cutting out any fat,” John Koskinen, the IRS commissioner, told reporters after his agency saw its budget slashed for the fifth consecutive year. “And we’re now into cutting, as people say, muscle headed toward bone.”

And here are some passages from a story published by Fox News.

The Internal Revenue Service is crying poor in the face of budget cuts and weighing the possibility of its own short-term shutdown — even warning that tax refunds could be delayed next year. …”Everybody’s return will get processed,” Koskinen told reporters. “But people have gotten very used to being able to file their return and quickly getting a refund. This year we may not have the resources, the people to provide refunds as quickly as we have in the past.” …Congress cut the IRS budget by $346 million for the budget year that ends in September 2015. The $10.9 billion budget is $1.2 billion less than the agency received in 2010. The agency has come under heavy fire from congressional Republicans for its now-halted practice of applying extra scrutiny to conservative groups seeking tax-exempt status.

So what’s the real story? Is the IRS budget not inadequate? Do the bureaucrats need more spending to process refund checks?

Well, my first response is to scold people who get refunds. That means, after all, that they overpaid their taxes during the year and – for all intents and purposes – gave the government and interest-free loan.

But that’s a separate issue. Let’s focus on the IRS budget. And as you can see from this chart, the IRS budget has declined since 2010. But you can also see that the IRS budget has approximately doubled over the past thirty years. And these numbers are adjusted for inflation!

So feel free to cry tears for the IRS, but just make sure they’re crocodile tears.

Just like the ones we all cried when the IRS complained about the possibility of being covered by Obamacare, even as the bureaucrats doubtlessly were looking forward to the new power the IRS got as a result of the law (and as humorously illustrated by cartoons from Gary Varvel, Glenn McCoy, and Henry Payne).

Now let’s bend over backwards and look at the issue from the IRS’s perspective. The bureaucrats will argue with some validity that tax laws are far more complex today than they were thirty years ago.

That’s unquestionably true, as shown by data on the number of pages in the tax code, number of provisions in the tax law, and even by the number of pages in the instruction booklet for the IRS 1040 form.

Heck, I mentioned just a few days ago that there were more than 4,600 changes in the tax code between 2001 and 2012 alone. And think of awful tax laws like FATCA that cost more to enforce than they produce in revenue.

All this nonsense is mostly the result of bad laws imposed by politicians, not a result of IRS actions.

But I still can’t find it in my heart to feel sympathy for the IRS.

After all, the IRS somehow managed to find the staff and resources to launch a politically motivated attack against tea party groups. And the so-called Taxpayer Advocate takes the side of the IRS rather than taxpayers. Worst of all, the bureaucracy even found enough money to hand out bonuses after being caught trying to interfere with elections!

So let’s celebrate the fact that the IRS is being subjected to some modest but long-overdue belt-tightening.

It couldn’t happen to a nicer group of people.

The bottom line is that IRS budget cuts show that Republicans sometimes do the right thing.

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I generally don’t feel a special degree of animosity for the internal revenue service. After all, it’s the politicians who have created the 74,000-plus page monstrosity of a tax code. Blaming the IRS for enforcing that system is like blaming the police for the drug war.

This isn’t to say the IRS is blameless. Just as cops sometimes take misguided laws and enforce them is bad ways, the IRS periodically will go beyond its legal mandate because of an enforcement-über-alles mentality.

But what gets me most upset is when the IRS allows itself – either with glee or reluctance – to become politicized.

For instance, the Washington Times reveals that the IRS may have violated taxpayer privacy by giving confidential taxpayer data to the political operatives in the White House.

The Internal Revenue Service may have given thousands of confidential filings from private taxpayers to the White House to review, a lawsuit against the Treasury Department just revealed. …“[T]he Treasury Inspector General for Tax Administration informed Cause of Action that there exist nearly 2,500 potentially confidential documents relating to investigations of improper disclosures of confidential taxpayer information by the IRS to the White House,” Cause of Action told The Daily Caller.

One possible example deals with the Obama Administration’s attack on the Koch brothers. As the Washington Examiner reported, Obama’s top economist at the time was the subject of an investigation.

The investigation by the Treasury Department Inspector-General for Tax Administration was sparked by Goolsbee’s remarks during an Aug. 27, 2010, White House news briefing in which he appeared to possess confidential tax information on Koch Industries, the private conglomerate controlled by the Koch brothers, Charles and David. …It is illegal for government officials to make public confidential tax information. Goolsbee was chief White House economist at the time. …senators requested the IG probe to determine if confidential tax records of individuals viewed by Obama as enemies were being passed around among senior staffers in the White House. …neither the report itself nor a summary of its findings have ever been made public.

Never made public? Gee, that’s mighty convenient.

It’s worth noting, by the way, that this isn’t the first White House to get in trouble for using the IRS as a political weapon.

…Section 6103 of the Internal Revenue Commission’s criminal code, which Congress enacted following revelations of President Nixon’s abuse of private tax information during the Watergate scandal. The second article of impeachment against Nixon in the House Judiciary Committee was based on those abuses.

So the ghost of Richard Nixon may approve of Obama, as suggested by this cartoon.

But this isn’t the only IRS scandal we need to monitor. Remember Lois Lerner, who became infamous for targeting the President’s opponents and then apparently losing her emails?

Well, we have an update. The Wall Street Journal opines on the latest development in the IRS targeting scandal.

…the IRS never “lost” emails after all. …Treasury Department Inspector General Russell George recently informed Congress that his forensic investigation has turned up as many as 30,000 emails from the account of former IRS Exempt Organizations Director Lois Lerner—emails the IRS has insisted were destroyed. The emails cover the crucial period from January 2009 through June 2011 when the IRS was ramping up its targeting… We can only imagine Mr. Koskinen’s shock in September when the Treasury IG said it had found 760 tapes that might hold Lerner emails. Or his further surprise when it took only a few weeks to identify and extract the specific Lerner documents—out of 250 million backup emails. And we can only imagine Mr. Koskinen’s apology for his agency’s email failure—since he hasn’t given one.

What can we learn from this episode?

Either the IRS didn’t bother to investigate these tapes or, more alarming, it did and chose not to produce the results. The IG is turning over the emails to the IRS, which is supposed to redact sensitive tax information before sending them to Congress. Mr. Koskinen needs to end the IRS stonewalling and turn the records over with dispatch without covering up incriminating evidence.

Indeed. One can’t help but wonder whether the delay in finding the emails and now the delay in turning them over to investigators is simply to allow time for smoking guns to be hidden.

With all this rampant corruption and abuse, you would think the IRS is the lowest-ranked government bureaucracy.

But don’t forget there’s lots of competition for that honor. The Washington Post reports on polling data from Gallup regarding which agencies are perceived to be “good” or “excellent.” Both the Federal Reserve and the Veterans Administration rank below the IRS.

I guess I’m not surprised that the Veterans Administration is rated so poorly. After all, that bureaucracy created secret waiting lists and denied care to veterans (and then the bureaucrats awarded themselves bonuses!).

Though the Fed’s low rating surprises me, simply because I assumed many people wouldn’t be sufficiently familiar to give a grade, whether positive or negative.

And I’m baffled that the Postal Service has a high ranking. Have people never waited in line at a post office?!?

But let’s stick with the topic of the IRS. If we look at a comparison of 2013 and 2014 ranking, you can see that the IRS actually enjoyed a bump as the targeting scandal receded from the headlines.

By the way, I’m glad to see the EPA gets a relatively low score.

Let’s close with a good cartoon about the IRS, though it’s not terribly funny when you realize that many people in Washington actually have this perspective.

By the way, if you enjoy anti-IRS cartoons, click here, here, and here for more examples.

P.S. Just in case anybody thinks I was giving the IRS a free pass because of my comments that politicians deserve the lion’s share of the blame for the scandals, allow me to bolster my libertarian bona fides.

I’ve certainly done my part to explain why the IRS bureaucracy deserves scorn.

P.P.S. I don’t want to end on a sour note, so here’s more examples of IRS humor from my archives, including a new Obama 1040 form, a death tax cartoon, a list of tax day tips from David Letterman, a cartoon of how GPS would work if operated by the IRS, an IRS-designed pencil sharpener, two Obamacare/IRS cartoons (here and here), a sale on 1040-form toilet paper (a real product), a song about the tax agency, the IRS’s version of the quadratic formula, and (my favorite) a joke about a Rabbi and an IRS agent.

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