THROWING MONEY AT THE IRS WON'T FIX.

• Author: Mangu-Ward, Katherine
• Position: FUTURE

THERE IS SOMETHING irresistibly appealing to certain politicians about the idea of giving more money to the IRS. Like the king in "Rumpelstiltskin," they thrust fistfuls of straw at the tax collection agency and demand that it be spun into gold. Also like the king, they do not care to look too closely at where exactly the gold is coming from, or at what eventual price.

In August, the Inflation Reduction Act allocated $80 billion in new funds to the IRS. A massive sum, but one carrying the weight of outsized political promises: Enough to hire 87,000 workers, increase the agency's enforcement budget by 69 percent, and surgically punish rich tax cheats yet somehow leave small businesses and everyone who earns less than $400,000 a year unmolested--all while raking in a hefty return in federal revenue by closing the "tax gap" created by evasion.

The Congressional Budget Office (CBO) did indeed estimate in 2021 that $80 billion in new spending under terms floated by President Joe Biden would bring in $204 billion in new revenue. A 250 percent return sounds like a pretty good deal, but $80 billion isn't the real price and $204 billion won't be the real return.

Those hypothetical hundreds of billions are supposed to come from people who, for the most part, do not want to part with them. Nobody likes paying taxes, and everyone would like to pay as little as possible when they do. Following the same logic as the government itself, taxpayers are willing to spend some money to improve their bottom line. Rich people can afford pricey lawyers and accountants. Less well-off people spend money on tax minimization, too; that is the selling proposition of H&R Block.

The burdens of tax compliance for individual taxpayers and small businesses come to $74 billion annually, according to calculations by the Tax Foundation. Add to that a burden of more than $60 billion on corporate entities just to comply with their income tax returns. Expanding enforcement is a great way to be sure those figures grow, swelling the true cost of that new federal revenue in the process.

The increased threat and incidence of audits is the primary vector by which the $80 billion is supposed to turn into $204 billion. But there is a great deal of uncertainty in that estimate. This is partly because the IRS is already plucking and gobbling the lowest-hanging fruit; previously marginal cases assigned to new revenue agents are likely to require more work for less reward. And those new...