The Taxman Cometh

Probably not.  Today is the regular filing deadline for individual taxpayers and the title of this post is purposefully misleading because if the White House succeeds in a 25% reduction-in-force at the Internal Revenue Service the probability of an audit will most certainly be reduced.

Using IRS published data audits of individual taxpayers has fallen by roughly two-thirds since 2010.

A decade and a half ago audit rates fell across all income levels.  In 2010 for most of us the probability of an audit might have been about 1 in 100.  By the time 2020 rolled-around it was even less.

Nowadays the probability of an audit is the lowest it's been in my lifetime. 

If you are a high roller or a business the same holds true.

Consequently, lower audit rates result in reduced revenue to the treasury.  In 2010 the IRS collected an additional $11 billion by means of auditing individual tax returns.  For the 2019 tax year that had fallen to $4.5 billion despite higher overall income levels. 

With the passage of the Inflation Reduction Act in 2022, President Biden planned to reverse attrition at the IRS by adding an additional 20,000 employees over the next decade.  The goal was to increase enforcement spending by about $45 billion over that same decade in hopes of capturing an additional $125 billion in revenue over the same period.  Naturally, the White House and Congressional Republicans have since rescinded or frozen spending on this initiative.

The Yale Budget Lab has estimated that planned reductions-in-force will result in a loss of gross revenues of anywhere from $395 billion to $2.4 trillion over the next decade.  This loss of revenue adds to the deficit even as Elon Musk's claims the efforts of the DOGE are an attempt to reduce the deficit. 

Revenue contributions aside, our tax code is basically a voluntary mechanism for collecting taxes.  I submit my return based-upon my assessment and that of my CPA of the adequacy of certain deduction or tax preference items.  If a taxpayer receive a nasty gram from the IRS challenging that assessment I can either pay-up or challenge it.  If I lose my challenge it is likely I won't take the same or similar position in a future year.  

Of course, if there is a steadily decreasing probability of an audit and subsequent rebuff I may be emboldened to be more aggressive about a filing.

Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

- Judge Learned Hand