Last week, the IRS Oversight Board, a seven-member panel including the secretary of the treasury, released a special report detailing what it referred to as a consistent underfunding of tax enforcement activities. The report, the first of its kind, included unusually sharp language, claiming that Bush administration's 2005 budget "not only threatens to end the clear progress made in customer service, it also does little to shrink our nation's tax compliance gap. It does not back up its goals on enforcement with the necessary resources to do the job." It was released only days before a new GAO study detailed the depth of corporate tax avoidance in the United States – an astounding 94 percent of U.S. corporations pay less than 5 percent of their income in taxes, and 60 percent pay no taxes at all. Ensuring that the IRS has adequate tax enforcement capabilities is an increasing governmental imperative, and one the Bush administration seems intent to ignore.
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The administration's 2005 budget seriously underfunds tax enforcement, which will result in less tax revenue and more unresolved fraudulent claims. Despite the administration's claim of increasing IRS funding by 4.6 percent in 2005, the IRS Oversight Board Report detailed why their budget would actually move the IRS's enforcement capability backwards. The administration completely ignored $230 million in expected cost increases related to pay, rent, and postage costs in its budget, which, if left unaddressed will lead to about a half-million unresolved delinquent tax cases, 15 million unanswered service calls, and 46,000 scheduled audits to not proceed.
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The administration has a perfect record on tax enforcement – they have underfunded IRS enforcement capabilities in every one of their four budgets. For the fourth year in a row, the administration has called for staff increases and increased enforcement capacity in its budget without providing the resources to support these activities. In 2003, the IRS was able to pursue only 18 percent of the abusive tax shelter cases uncovered by IRS agents because of capacity constraints. The only area the administration has been willing to increase funding is on compliance with the Earned Income Tax Credit for low-income families. In its 2004 budget, the administration requested a 68.5 percent increase in the EITC enforcement budget, despite the fact that EITC avoidance represents only 2.8 percent of the overall uncollected tax gap.
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A congressional panel recently discovered that the administration's budget also denies funding for agents to pursue the finances of terrorist organizations such as al Qaeda. The Budget denies a funding request for 80 additional criminal financial investigators to go after the financial networks that al Qaeda, Hamas and other terrorist groups rely on to finance their activities.