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The Future of American Tax Administration: Conceptual Alternatives and Political Realities

Johnson, Steve R.

The Internal Revenue Service now stands at the precipice of an uncertain future. With considerable justification, the IRS considers itself as being among the most successful revenue collection organizations in the world.[1] Whether that characterization will remain accurate in the future will depend on how the IRS deals, and is allowed to deal, with intersecting trends threatening to cripple the ability of the IRS to perform its core mission of revenue collection.

Part I of this article describes this intersection, which has reached crisis proportions.[2] The workload of the IRS—both in revenue collection and especially in adventitious missions Congress has chosen to assign to the IRS—has burgeoned in recent decades. At the same time, the resources allocated to the IRS by successive Congresses and Administrations—never fully adequate—have declined in inflation-adjusted terms and, in recent years, even in nominal terms. Part I also notes the most visible manifestations of the intersection of these trends: decreases in key IRS activities and results almost across the board, with consequent substantial losses to the federal fisc.

Two obvious and “easy” possible fixes immediately leap to mind: (1) the IRS should become more efficient and/or (2) Congress should appropriate more money for the IRS. Both of these approaches have roles to play. However, Part II explains why neither alone nor the two together can be fully satisfactory.

Theoretically, there are a number of different ways to relax the anaconda grip of the IRS’s workload and budget squeeze. Some would require legislation. Others could be implemented without statutory change. Part III sketches some of the alternatives. It also notes precedents for some of them as well as obstacles to and potential disadvantages of their adoption.

Part IV examines reasons why desirable reforms have not yet been implemented. There are plenty of plausible ideas. Our failure to implement the best ideas results in part from intellectual failures (clinging to policy preferences and ways of thinking that make little sense in the current environment) but in larger part from political and bureaucratic realities. Reforms advantageous to the country would forfeit privileges and opportunities cherished by key congressional and executive actors.

While it would be naive to discuss tax administration without awareness of the hampering realities, it would be unduly pessimistic to quit the field in despair. Constellations in the political firmament are in constant motion. Changes not currently feasible may become feasible later. Recent history has shown that long-blocked changes can suddenly become politically viable. That being so, how should the tax community proceed? I suggest two principles. First, tax administrators, practitioners, and scholars should continue to think and talk about the merits of ideas unhampered by the thought that they might not be feasible. In public policy generally, and in tax policy in particular, realities are temporary, not perpetual. We should build the intellectual case for good ideas in preparation for the time when changing political or economic dynamics redefine the boundaries of feasibility.

Second, bad ideas as well as good ones can suddenly emerge as serious candidates for adoption. The tax community must be alert to these threats and respond to them rapidly and energetically. If accepted as an excuse for inertia, the notion that it would never be adopted may be the precursor to a professional lifetime of regret when the terrible idea, unopposed, actually wins adoption.

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Columbia Journal of Tax Law

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Law
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November 21, 2016