IRS May have to Make Do with Less in 2012

In difficult financial times, individuals are forced to take a good hard look at every single expense to make sure it is necessary.  And in the federal government, it’s no different.  Lawmakers are looking across the board at every service, program, committee, and agency.  Expenses that cannot be eliminated will be reduced as much as possible, . . . and rightly so.  Right?

What about expenses that generate revenue?  Should there be an exception?  IRS Commissioner Douglas Shulman believes that not all government expenses are created equal.  He believes that his agency should be treated differently.

The House Appropriations Committee has recently approved proposed legislation that would cut funding to the Internal Revenue Service by $600 million for fiscal year 2012 and Shulman is up in arms about it.  He has some bold words:

[T]hese budget cuts will result in a direct increase to the nation’s deficit.

~ Douglas Shulman, Commissioner of the IRS

Nice soundbite at least.  Here’s what he thinks will happen if we cut funding to the IRS.

  1. reduction in service
  2. reduction in revenue collected
  3. negative impact on voluntary compliance for years to come

As for a potential “reduction in service,” Shulman says that, in some instances (if the budget cuts are approved), it would take 5 months for the IRS to respond to taxpayers’ written inquiries and only half of those telephoning the agency would get through.  Resolution of back taxes would be slowed significantly.  I don’t know, maybe Shulman should welcome these cuts — it would allow his agency to continue providing low quality service, except now they would have a good excuse.  Read Shulman’s full letter here.

Obama’s Deficit Reduction Plan

How does President Obama propose to reduce the deficit by just over $2 trillion in 10 years?  In a nutshell:

Tax the Rich

  • repeal of the Bush-era tax rates for couples making more than $250,000
  • place limits on deductions for wealthy filers
  • end certain corporate loopholes and subsidies for oil and gas companies
  • combined $1.5 trillion in new taxes

Cuts to Benefit Programs

  • $248 billion cut from Medicare
  • $72 billion cut from Medicaid & other health programs
  • $430 billion in savings from lower interest payment on the national debt
  • $1 trillion in savings from drawing down military forces from Iraq and Afghanistan

See details here.