Besides taxes themselves, Bob Dole has made a campaign issue of the tax collector. And along with taxes, he pledges to cut the tax-collection bureaucracy. In fact, he has compared the Internal Revenue Service to the KGB (the old Soviet secret police), and promises to “end the IRS as we know it.” Apart from the taxes themselves, does the process of collecting them impose an unreasonable burden on the American citizenry?
Tax forms: About one-third of filers use either the 1040EZ or the 1040A forms. Both are for people with taxable incomes of less than $50,000 and few or no complications, and some people can fill them out in a few minutes. The regular 1040 (the “long form”) is for those with taxable incomes over $50,000 a year, who claim credits or deductions, realize capital gains, and/or file separately from their spouses. The IRS estimates that this form takes almost 12 hours to complete. About half of the total taxpaying population (58.8 million) files the long form.
In recent years, the IRS has adopted faster, high-tech methods of filing. If you qualify for the 1040EZ form, are single with no dependents, and live at the same address as you did last year, you can file over the telephone using the TeleFile system–a process that takes about 10 minutes. In 1996, the first year in which TeleFile was widely available, 2.8 million people (2.4 percent) used it. Taxpayers can file any type of 1040 form electronically–and 10 percent of taxpayers did so in 1996. Another 6 percent filed a 1040PC form, meaning that they worked out their taxes using a personal computer.
About three-quarters of taxpayers get a refund (meaning that they paid too much over the course of the year). For tax year 1995, the IRS received 116.3 million returns and sent out 88.7 million refunds. The average turnaround for refunds is 38 days for paper forms and 21 days for returns filed telephonically and electronically
Dole has promised to rein in auditors, calling their methods “crass and callous.” Since the IRS relies on self-reported income, it audits returns to ensure payment. Compliance is far from perfect. In 1992 (the most recent numbers) an estimated $94 billion went unpaid out of about $551 billion owed in personal income taxes. In other words, 17 cents–almost one-fifth–of every dollar of personal taxes owed goes uncollected.
In fiscal year 1995, the IRS completed 1.9 million audits–an audit rate of 1.67 percent. But 1995 was unusually high–especially for low-income filers–because of two special compliance programs, including a crackdown on widespread abuse of the Earned Income Tax Credit. The audit rate usually averages just above 1 percent, or one out of every 100 taxpayers. In 1995, the IRS audited 2 percent of those with incomes of less than $25,000; 1 percent of those between $25,000 and $100,000; and almost 3 percent of those whose incomes topped $100,000.
O wing the government money is not like owing anyone else. The IRS has special weapons for collecting taxes that are overdue (plus penalties and interest). These weapons include a tax lien on the taxpayer’s property. In 1995, the government filed 799,000 notices of federal tax liens. The government can also levy property held by third parties, such as wages or money deposited in a bank, and served 2.7 million notices of levy in 1995. (A lien claims property only as security against a debt, while a levy actually takes it.) Finally, the government can seize property and sell it to collect what it is owed. It made 11,000 such seizures in 1995.
The IRS can also sue for tax fraud. It initiated 3,698 criminal fraud investigations in 1995. The courts convicted 1,945 people, and 1,387 went to prison. Taxpayers who feel they’re being cheated can also take the IRS to court, which happened 11,000 times in 1995.
Bob Dole proposes to “cut the number of IRS bureaucrats by 30 percent by 1999.” At the close of 1995, 114,000 people worked for the IRS. These people will collect about $1.4 trillion in taxes this year. About 19,000–17 percent–are auditors, and another 8,000 are revenue officers charged with collecting unpaid taxes, interest, and penalties. The remaining 74 percent process tax returns, provide help to taxpayers, and carry out other administrative and adjudicative functions. The budget of the IRS in 1995 was $7.63 billion, $4.24 billion of which went to tax law enforcement.
Recent congressional actions have moved the IRS in the direction Dole wants to take it. The fiscal year 1997 budget shrinks the IRS appropriation by $342 million. Furthermore, Congress recently passed a “Taxpayer Bill of Rights” that makes it easier for taxpayers to sue the IRS and increases the amount of damages that can be collected in these suits. It also increases the IRS’ responsibility to notify taxpayers when it is going to conduct enforcement action and creates other new procedural rights for taxpayers.
In 1982, Dole called for increasing the IRS staff in order to collect more unpaid taxes. According to the IRS, every dollar spent on enforcement brings in a return of $4 in revenue.