The Freedom Caucus Should Stop Crying Wolf About the IRS

The recently enacted Fiscal Responsibility Act (P.L. 118-5) lifted the federal government’s debt ceiling for two years and avoided a possible default (at least for now). As with most large spending bills, some groups cry foul because their priorities aren’t addressed. This time around, the House Freedom Caucus, a group of fiscally conservative Republicans, is the bride left at the altar.

On May 30 the Freedom Caucus held a news conference decrying the act’s cut of “only” $1.4 billion from the $80 billion in additional funding authorized for the IRS by the Inflation Reduction Act (IRA, P.L. 117-169).¹ According to the Congressional Budget Office, however, the reduction in IRS funding is expected to result in an estimated loss of $2.3 billion in revenue, resulting in a $900 million increase in the national debt between 2023 and 2033.² That doesn’t sound very fiscally responsible. Politically motivated changes have a logic other than the traditional cost-benefit calculation.

The $1.4 billion decrease in IRS funding is just the latest salvo against the IRS from the Freedom Caucus. In January the House passed, on a party-line vote, the Freedom Caucus-endorsed Family and Small Business Taxpayer Protection Act (H.R. 23), which eliminated the additional $80 billion in funding allocated to the IRS in the IRA, even though the CBO reported that rescinding the funding would add $114.3 billion to the national debt by 2032.³

Republicans tried again to eliminate the additional IRS funding with the Freedom Caucus-backed Limit, Save, Grow Act of 2023 (H.R. 2811), passed April 26 on a party-line vote, even though the CBO estimated that do so would add $119.7 billion to the national debt by 2033.⁴ Again, that doesn’t sound very fiscally responsible. Some Republicans decided to cut to the chase by introducing legislation to eliminate the IRS and establish a national sales tax administered by the states on behalf of the federal government.⁵ Given that this would reverse 115 years of government history, it is not surprising that the CBO hasn’t scored this bill, which is now stalled in committee.

Table 1. Summary of Enforcement Actions, Fiscal 2010 Through Fiscal 2022,
Benchmarked Against 1992

Fiscal Year	Field Examinations Closeda	Number of Notices of Levy Requested on Third Partiesb	Number of Federal Tax Liensb	Number of Seizuresb	Indictments and Criminal Informations (Legal-Source Tax Crime)c
1992	1,325,689	3,253,000	1,453,000	11,000	1,005
2010	462,131	3,606,818	1,096,376	605	812
2011	525,389	3,748,884	1,042,230	776	905
2012	502,180	2,961,162	707,768	733	1,161
2013	466,093	1,855,095	602,005	547	1,705
2014	401,340	1,995,987	535,580	432	1,513
2015	376,223	1,464,026	515,247	426	1,330
2016	342,297	869,196	470,602	436	1,092
2017	309,062	590,249	446,378	323	827
2018	249,768	639,025	410,220	275	636
2019	202,223	782,735	543,604	228	591
2020	139,742	396,269	291,081	77	462
2021	159, 487	305,610	212,251	96	536
2022	151,437	373,286	157,323	89	487
Difference between fiscal 2010 and 2022	(310,694)	(3,233,532)	(939,053)	(516)	(325)
Percentage change from fiscal 2010 to 2022	(67.2%)	(89.7%)	(85.7%)	(85.2%)	(40%)
Percentage change between fiscal 1992 and 2022	(88.6%)	(88.4%)	(89.2%)	(99.2%)	(51.5%)
aIRS, 1992 Annual Report, Table 13 (1993); IRS, data books 2010-2017, Table 9A; IRS, data books 2018-2019, Table 17b; IRS, data books 2020-2022, Table 18. bIRS, 1992 Annual Report, Table 19; IRS, data books 2010-2017, Table 16; IRS, data books 2018-2020, Table 25; IRS, data books 2021-2022, Table 25. cIRS, 1992 Annual Report, Table 20, at Program: White Collar Tax Crimes; IRS, data books 2010-2018, Table 18; IRS, data books 2019-2022, Table 24.

To justify their Don Quixote-like obsession with the IRS, House Speaker Kevin McCarthy, R-Calif. (not a Freedom Caucus member), wrote:

We (House Republicans) . . . eliminated funding that would be wasted this year to hire Mr. Biden’s new army of Internal Revenue Service agents. Washington has a spending problem — not a revenue problem — and government should exist to service you, not go after you.⁶

Table 2. 30-Year Change in IRS Employees, U.S. Population, and Total Tax Returns Filed

Fiscal Year	Number of Employeesa	U.S. Populationa	Total Returns Filedb
1992	116,673	257,861,000	204,075,000
2022	79,070	334,064,000	262,829,039
Increase (decrease)	(37,603)	76,203,000	58,754,039
% Increase (decrease)	(32.2%)	29.6%	28.8%
aIRS, data books 2021 and 2022, Table 31. bIRS, 1992 Annual Report, Table 2; IRS, data book 2022, Table 2.

Rep. Andy Biggs, R-Ariz., recently said that the IRS funding in the IRA would be used to create a “new Stasi (of) IRS agents who will be a weaponized IRS force.”⁷

The comments by McCarthy and Biggs indicate paranoia about an omnipotent IRS blanketing the country with overzealous auditors trampling the rights of innocent taxpayers. Nothing could be further from the truth. In this article we present five facts that show that the IRS is underfunded, understaffed, and less capable of enforcing the Internal Revenue Code than at any time in the past 30 years.

Fact 1: Tax Enforcement Has All but Vanished

We doubt that Biggs reviewed the IRS’s enforcement statistics before comparing the IRS with the Stasi.⁸ To explore this dimension, we researched five key enforcement activities by the IRS: field examinations closed (audits in which the revenue agent comes to your home or business), number of notices of levy requested on third parties, number of federal tax liens filed, number of seizures of property for nonpayment of tax, and number of criminal indictments or criminal informations filed on legal-source income tax cases. Table 1 reports the results of our research, along with data from fiscal 1992 for comparison.

Table 1 shows the dramatic declines in all five enforcement activities between fiscal 2010 and 2022, including a near-total collapse in the number of levies, liens, and seizures. When compared with 1992, even more dramatic declines are apparent. Comparisons with 1992 may be imperfect because the number of examinations closed in 1992 may also include correspondence audits, which are usually conducted through the mail by lower-level employees. Also, the IRS does not delineate in the 1992 data book the number of legal-source income tax cases, so we used the number for white-collar crime cases. However, even an imperfect comparison with 1992 shows the erosion of enforcement activities. This situation requires a more detailed look at IRS capacity.

Fact 2: Fewer IRS Enforcement Personnel

The IRS is understaffed.⁹ As shown in Table 2, in 1992 (the last full year of the George H.W. Bush administration) 116,673 employees worked at the IRS administering the IRC for about 258 million Americans who filed 204 million tax returns. By 2022, the IRS employed only 79,070 workers to serve a population of 334 million who filed 262.8 million tax returns.

That translates to there being 32.2 percent fewer IRS employees to serve a taxpaying population that has grown by 29.6 percent and filed 28.8 percent more tax returns than their 1992 counterparts. If the IRS had grown by the rate of the population, today’s IRS workforce would number 149,618, or a little less than double its actual current workforce.

As shown in Table 3, the staffing levels of three key enforcement groups are at historical lows. Revenue agents are the field auditors who handle the most complicated returns. Revenue officers have the primary responsibility for collecting delinquent taxes and overdue unfiled tax returns. Special agents conduct criminal investigations with other government agencies. All groups have seen their numbers decline precipitously.

Table 3. Staffing Levels for IRS Enforcement Personnel, Fiscal 2010 Through Fiscal 2022, Comparison With 1992

Fiscal Year	Revenue Agentsa	Revenue Officersa	Special Agentsa
1992	15,947	9,704	2,943
2010	13,879	6,042	2,739
2011	13,969	5,621	2,618
2012	13,011	5,186	2,581
2013	12,270	4,748	2,509
2014	11,659	4,439	2,437
2015	10,862	3,994	2,326
2016	10,174	2,525	2,184
2017	9,759	3,434	2,124
2018	9,037	3,133	2,034
2019	8,526	2,995	1,994
2020	8,346	3,040	1,965
2021	8,321	2,783	2,004
2022	8,566	2,931	2,005
Increase (decrease) between fiscal 2010 and 2022	(5,313)	(3,111)	(734)
Percentage increase (decrease) between fiscal 2010 and 2022	(38.3%)	(51.5%)	(26.7%)
Percentage increase (decrease) between fiscal 1992 and 2022	(46.2%)	(69.8%)	(31.9%)
aIRS, 1992 Annual Report, Table 30; IRS, data books 2020-2021, Table 30; IRS, data book 2022, Table 32.

Table 4. Schedule of Estimated Tax Gap and Compliance Rates 2011-2019

Tax Years	Gross Tax Gap (billions)	Collected Through Enforcement (billions)	Net Tax Gap (billions)	Voluntary Compliance Rate	Net Compliance Rate
2011-2013	$438	$58	$381	83.7	85.5%
2014-2016	$496	$68	$428	85%	87%
2017-2019 (projected)	$540	$70	$470	85.1	87%
Source: IRS, “Federal Tax Compliance Research: Tax Gap Estimates for Tax Years 2014-2016,” Publication 1415 (Rev. Oct. 2022).

Dramatic losses in key enforcement personnel over an extended period as shown in Table 3 resulted in the near-collapse of IRS enforcement efforts.

Fact 3: The IRS Won’t Double in Size

The 87,000-employee increase figure commonly cited by the Freedom Caucus (as well as the media) stems from The American Families Plan Tax Compliance Agenda issued by the Treasury Department in May 2021.¹⁰ However, that doesn’t mean that the IRS will double in size in the 10-year window contemplated in the legislation. In 2022 then-Commissioner Charles Rettig reported to Congress that he expected 35,000 employees to retire in the next six years, along with 17,000 more to leave before retirement. Therefore, just to maintain current staffing levels would require replacing 52,000 employees.¹¹ The IRS expects to hire 29,566 new employees in fiscal 2023 and 2024 combined, but that would allow the agency to grow by only 20,000 employees,¹² demonstrating that about one-third of its new hiring will cover attrition for only the next two years. The 87,000 number was an imaginary stalking horse deployed by opponents.

Fact 4: New Hires Aren’t Only in Enforcement

The IRS has allocated only $45.6 billion of the $79.4 billion of IRA funding to enforcement efforts.¹³ The remaining funds go to taxpayer services ($3.1 billion), operations support ($25.3 billion), business systems modernization ($4.8 billion), Direct eFile ($15 million), and energy security ($0.5 billion). The IRS hiring plan, however, reflects that taxpayer services will be the priority for the first two years. Of the 29,566 new hires expected in fiscal 2023 and 2024, 13,883 (47 percent) will be for taxpayer services, while only 8,872 (30 percent) will be for enforcement.¹⁴ Images of massive crackdowns on American taxpayers were pure fiction against the background of an agency that needs massive infrastructure rehabilitation to do what anybody imagines to be the bare necessities of its work.

Fact 5: The Tax Gap Won’t Close by Itself

The gross tax gap is the amount of tax revenue from legal-source income that taxpayers fail to remit in a timely manner. The amount still outstanding after enforcement efforts is called the net tax gap. The IRS estimates those amounts in three-year increments based on audit results and other statistical modeling techniques.¹⁵ The IRS also estimates the voluntary compliance rate and the net compliance rate, which is the percentage of total taxes due and owing after enforcement efforts.

The tax gap calculation method isn’t intended to capture lost tax revenue from income generated by illegal activities such as narcotics sales, human trafficking, or terrorism, so the actual tax gap might be significantly higher.¹⁶ Then-Commissioner Rettig told the Senate Finance Committee two years ago that the gross tax gap may be as high as $1 trillion because of the proliferation of online commerce.¹⁷

As shown in Table 4, Treasury loses around $470 billion a year in unrealized tax revenue after enforcement efforts. This reflects a net noncompliance rate of about 13 percent (assuming a net compliance rate of 87 percent). Today’s levels of enforcement appear unable to significantly increase the net compliance rate over the voluntary compliance rate. Unless losses of this magnitude are deemed acceptable, investments in enforcement must be made.

Conclusion

Several facts are self-evident. No one (including the authors) likes paying taxes, and no congressperson ever got elected by promising constituents more audits. The administration of the IRC is, however, one of the basic functions of government so that it has the resources necessary to provide the public with the services they have all come to expect, such as drivable interstate highways, police protection, and military defense.

For the Freedom Caucus and McCarthy to demonize the IRS with inflammatory and false statements undermines public confidence and detracts from legitimate criticism against that agency to improve service and enforcement. For some, it might even make them less likely to pay their taxes.