Can We Reduce the Annual Deficit Without Raising Taxes?

Large tax cuts combined with increased military spending are producing alarming increases in the national debt. Some conservative members of Congress would like to fix this problem, which they created, by slashing Social Security, Medicare, and Medicaid.

Using the subterfuge of a "balanced budget" amendment to the Constitution, a recent effort to steal the 2.8 trillion dollars in the Social Security Trust Fund failed. This was just as well since Social Security is not causing the current governmental operating deficits, and cutting benefits would contradict President Trump's campaign promise not to cut that program.

Alternate ways to reduce the annual deficit would be to abandon imperial ambitions and cut military spending substantially, or to increase tax rates. Some liberals would favor one or both of these approaches. But nothing will be done about increased deficits unless both liberals and conservatives can agree on it.

One measure should be a no-brainer for both camps: a large increase in the budget for the Internal Revenue Service. Increasing the budget for most departments would increase the federal deficit, but the IRS is different. Increasing its budget would allow it to hire more auditors, and having more auditors would allow it to detect more of the massive tax cheating that deprives the government of billions of dollars annually.

Since 2011 appropriations for the IRS have been reduced so much that it had to cut enforcement staff by a third and audits of tax returns have been reduced by 42%. The IRS estimates that businesses alone fail to pay about $125 billion dollars in taxes that they owe every year. Nobody knows how much individual taxpayers are cheating on their taxes, but the individual cases that have recently come to light suggest that this is also a very large amount of money.

The cuts to the IRS budget since 2011 have been a classic example of "penny wise but pound foolish." Every extra dollar appropriated for the IRS would produce as many as eighteen additional dollars of tax revenues simply by even-handed enforcement of current tax laws. This is why increasing the budget for the IRS would substantially decrease the annual deficit.

A large proportion of tax cheating is done by people who are very well off, people who can afford to hire experts to help them cheat and whose affairs are so complicated that opportunities to cheat are abundant. People with average incomes enjoy far fewer such opportunities, since their wages are subject to tax withholding and reported by employers to the government.

Likewise, interest and dividend payments are also reported to the government. IRS computers can easily compare these figures with the amounts declared on individual tax returns and flag discrepancies for followup and prosecution.

Of course any cheating on taxes owed, whether by fat cats or by average people, is intolerable and there is nothing whatever to be said in favor of it.

American politicians are highly dependent on donations to finance their campaigns. A typical member of the House of Representatives has to spend several hours a day raising money for his or her next campaign, time which becomes unavailable to devote to legislative work.

Well-to-do people and businesses naturally are the biggest contributors Cynical observers might wonder if the cuts in IRS appropriations were enacted to curry favor with wealthy donors seeking enhanced opportunities to cheat on their taxes.

Columnist Paul Krugman, speaking on behalf of such cynics, recently claimed that "we don't just have government by tax cheats, we have government of tax cheats, for tax cheats."

Congress could undermine such cynicism by enacting a substantial increase in the IRS budget, allowing it to hire additional thousands of auditors and to crack down decisively on tax evasion. It would be interesting to hear the arguments of any politician who opposed such a measure, and it would be satisfying to see the annual deficit reduced without having to enact tax increases.

Let me conclude with a bit of sarcasm, which is obviously not intended as a serious proposal: If Congress finds it impossible to strengthen the IRS, perhaps in the name of equity it should stop requiring employers to report information about wages and salaries paid to their workers.

This would at least distribute the opportunity to cheat on taxes more equally so that it would no longer be a monopoly of the rich and powerful.

Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. He received his Ph.D. from Johns Hopkins University in 1966, and has been a National Merit Scholar, an NDEA Fellow, a Woodrow Wilson Fellow, and a Fellow in Law and Political Science at the Harvard Law School. His college textbook, "Thinking About Politics: American Government in Associational Perspective," was published in 1981 and his most recent book is "Beyond Capitalism: A Classless Society With (Mostly) Free Markets." His columns have appeared in newspapers in Michigan, Oregon, and a number of other states. To read more of his reports — Click Here Now.