So you think you have financial issues?  Just listen to what Nina Olson, National Taxpayer Advocate, has to say about the IRS.  In her annual report to Congress she suggested that the IRS’s increasing workload and declining resources are the most serious problems facing taxpayers.  So how does she connect the dots to conclude that this is a “taxpayer” problem?

  She reasons that the resulting inadequate taxpayer service, erosion of taxpayer rights and reduced taxpayer compliance are causing harm to the taxpayers.  That’s how!  I don’t know.  Seems to me like an IRS problem rather than a taxpayer problem.  But, then again, doesn’t the taxpayer always get stuck with the tab?

But wait.  Maybe there is a solution that doesn’t stick the taxpayer with the bill.  It turns out that increasing funding for the IRS might actually be a good investment.  Current inadequate funding contributes to many of the problems facing today’s IRS.  When the federal individual income tax was first enacted in 1913, it applied only to high-income taxpayers, which totaled about 358,000 people.  That total today stands at 141.2 million with one tax return for about every two people in the United States.  And believe me, the returns are a lot more complicated now than they were almost 100 years ago.

It seems that as the collection agency for the U.S. government, the IRS does a pretty good job.  On a budget of $12.1 billion, the IRS collected $2.42 trillion in fiscal year 2011.  That is to say that for every $1 that Congress appropriated for the IRS, it collected about $200.  Now with the current “tax gap” at about 15%, every household is paying an annual “noncompliance surtax” of about $2,700 to enable the federal government to raise the same amount of money it would have collected if all taxpayers had reported their income and paid their taxes in full.

While I doubt that appropriating an extra $1 would produce the same collection rate when applied to the last 15% of noncompliance, I’ll bet it would provide an attractive return on the investment.