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Policing Tax Evasion Could Save Billions, But Republicans Won't Fund Enforcement

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TAX EVASION
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House Speaker John Boehner (R-Ohio) admitted on Monday that the federal government is in serious need of extra revenue. But since taking control of the House in January, Republican lawmakers have scuttled proposals that could reap billions in added government revenue by better policing tax evasion, saying government tax collectors should make better use of existing resources in this era of fiscal constraint.

The U.S. government loses around $300 billion in revenue each year because of tax cheats, some of whom hide their earnings in offshore accounts or disguise them using complicated business structures, according to the Internal Revenue Service. Since 2001, tax evasion has cost as much as the wars in Iraq and Afghanistan, the Bush tax cuts and the 2009 stimulus combined, according to the financial-services analysis firm The Motley Fool.

In February, the Obama administration requested $339.3 million in additional funding for the Internal Revenue Service in 2012 to chase this costly tax evasion. According to the IRS, that extra funding would be paid back twice over with the additional revenue brought in through enforcement.

Most outside economists agree.

"There is no question that the IRS agents are able to produce enough extra revenue to be a good return on that investment," said Wayne Angell, a conservative economist who is a former governor of the Federal Reserve Board and has previously worked for Bear Stearns.

Yet instead of supporting increased enforcement, the GOP has been trying to cut IRS funding. In March, the House GOP sought to strip $600 million from the IRS budget as part of the continuing budget resolution. IRS commissioner Douglas Shulman told a house subcommittee those cuts would cost the government $4 billion in lost revenue. The final budget deal left the tax collection agency's annualized budget unchanged at $12.1 billion, $486 million less than the Obama administration had requested.

Sen. Charles Grassley (R-Iowa) said the agency could better enforce tax dodgers without additional funds, mentioning a controversial private debt collection program that was defunded in 2009. "The IRS killed one of the most efficient and effective programs to collect back taxes just as the program was taking off," Grassley said in a statement emailed to The Huffington Post. "The IRS, like other federal agencies, has room to cut waste and work smarter."

But, Rep. José Serrano (D-N.Y.) said Republican efforts to slash IRS funding were a perfect example of the broader GOP strategy of "cut first, think later."

"Cutting IRS enforcement funding to reduce spending is like cutting off your nose to spite your face," Serrano said. "If tax cheats are allowed to run with their money without fear of an IRS agent catching them, the deficit will inevitably grow."

Republicans will try to cut the agency's budget again for fiscal year 2012, according to the Associated Press. The Obama administration has requested $244 million in additional IRS funding in 2012 to better investigate offshore tax evasion, spot corporate and high-wealth tax scofflaws and implement enacted legislation. The IRS estimates that these initiatives could generate $646 million in new revenue by the end of next year and projects that if begun in 2012 they could yield $1.3 billion in additional revenue in 2014.

Republicans have also said that increased IRS funding does not always greater revenue gains. Michelle Dimarob, a spokeswoman for the House Ways and Means Committee chaired by Rep. Dave Camp (R-Mich.), noted that IRS enforcement-derived revenue went up by more than 17 percent in 2007, even though the agency's budget remained at 2006 levels. That year, the agency's enforcement revenue hit $59.2 billion, with a budget of $10.6 billion. In contrast, Dimarob said, the IRS collected only $57.6 billion in enforcement revenue in 2010, with a $12.1 billion budget.

David Cay Johnston, who teaches tax law at Syracuse University law and business schools, said cutting IRS funding would increase the deficit. But more importantly, he said, it would encourage lawless behavior by the most sophisticated tax cheats, who know how to circumvent a cursory audit.

"Here's the real question to ask: The Internal Revenue Service is the money-making division of the government. It's the sales department. Why would you cut your sales force when you have the budget constraints that we do?" said Johnston, who in 2001 won a Pulitzer Prize for his New York Times coverage of the U.S. tax code. "It is astonishing to me that people who want law and order on other issues want to handcuff the tax police."

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