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The IRS is struggling when U.S. taxpayers file their returns

Taxpayers across the United States were required to file their federal tax returns before April 18, and they did so amid a number of reports that the IRS was facing significant tax returns, staff shortages and uncertainty about its funding.

It’s no secret that the US tax authorities are in a bad situation. Nor are the reasons behind its troubles. The agency’s budget has been cut by 18% over the past decade, and a long-term layoff means that when experienced accountants and other professionals retire, the pipeline of staff trained to take on positions becomes dry.

The agency is facing more than 7 million returns from last year that have not yet been processed. And the Biden administration has estimated that about $ 600 billion in taxes owed by the richest Americans goes uncollected each year because the agency does not have the manpower to review returns to comply with basic tax laws.

In addition, funding cuts have led the IRS to step in when it comes to technology. Agency staff must enter information manually from paperwork, even if the technology is available to enable the process to be automated.

Pandemic added responsibility

The emergence of the coronary heart disease pandemic in 2020 created completely new challenges for the organization. In addition to navigating an epidemic-related closure, it was tasked with directing much of the relief effort, including harassment inspections, and later the introduction of a refundable child tax deduction that sent millions of Americans monthly payments.

“The incredible challenge to our system is how much we ask for it,” William Gentry, a professor of economics at Williams College, told VOA. “We are not just asking for income. We ask it to serve all kinds of social roles. “

The agency finally saw that budgets increased in the current financial year, to 12.6 billion dollars from almost 12 billion the year before. But because it has no certainty about the future prospects of its budget, IRS Secretary Charles P. Rettig has warned lawmakers that it is difficult for the agency to plan for the long term.

French riot police take a stand in front of protesters wearing yellow vests (gilets jaunes) who are demonstrating rising cost of living that they blame on high taxes on the Champs-Elysees in Paris, December 15, 2018.

International comparison

As troubled as the IRS may seem to U.S. citizens, it is far more effective and efficient than the tax authorities in many countries around the world, experts say. This is especially true in developing countries where the administrative capacity to operate is as complex as the imposition of national income tax.

Daniel Bunn, executive director of the Tax Foundation, a Washington-based think tank, told VOA that in many developing countries it would be virtually impossible for governments to monitor economic activity in a way that makes personal income tax more effective.

“There is a fair amount of activity going on in the money economy, the gray economy or the black market – whatever term you use,” he said.

Because governments can only tax what they can measure, many developing countries rely on the taxation of entrenched companies for a much higher share of their total revenue than countries like the US Bunn said that while developed countries rely on corporate taxes for only about 9% of its total tax revenue, developing countries average about 16%.

Consumption taxes

A unique feature of the US federal tax system is its lack of a consumption tax component. Most other countries – both developed and developing – use a VAT system, which adds to the incremental tax payments on goods and services at each stage of their production.

“For historical reasons, we have left consumption taxes – the taxes you would pay in the cash register – to the states through retail taxes,” Gentry said.

Economists are often frustrated by the lack of VAT in the United States, which is considered more effective than personal income taxes.

“They distort economic activity less because they do not affect investment,” Thornton Matheson, a senior fellow at the Tax Policy Institute, told VOA. “They do not tax the profits of companies, so they do not affect investments. They can influence decisions about work, but in general VAT is more efficient than taxes on labor, such as personal income tax, payroll taxes and social security contributions. “

Administrative “nightmare”

As much as they believe that VAT is a better way for the United States to generate a portion of its revenue, experts acknowledge that the political effort in question is enormous.

In addition to finding a way to replace or redistribute the revenue that consumption taxes already generate to individual states, the various systems that have evolved over the years would need to be streamlined. Some states have no sales tax while others tax different things.

“All the states need to be reconciled and they do not want to reconcile,” Gentry said. “New Hampshire does not have a sales tax. Tennessee taxes food, while Massachusetts does not tax food. And so, there are all these complex choices. “

He added: “And then you start selling products online and it’s going to be a nightmare.

The IRS is struggling when U.S. taxpayers file their returns

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