The Smartest Tax Move We Can Make

The smartest tax move is one that Congress must make. It would help us a lot.

Apr 12, 2014 at 12:00PM

It might not surprise you to learn that something stupid has been going on in Washington. As Congress has focused on budget cuts in recent years, it has slashed funding for the Internal Revenue Service. You might consider that cause for celebration, but it's not -- because it's very counterproductive. The smartest tax move for America would be to give more money to the IRS.

According to the House Appropriations Committee, the IRS' funding for fiscal 2014 is less than it received in 2009. The Federal Times reported that while the Obama administration sought close to $13 billion for the agency, it's receiving just $11.3 billion, more than half a billion dollars less than it got last year.

American taxpayers actually have someone in Washington looking out for us and regularly making sensible recommendations to Congress about the smartest tax moves it can make: Taxpayer Advocate Nina Olson. Unfortunately, her words often go unheeded. In Olson's 2013 report to Congress, delivered a few months ago, she noted that the "IRS desperately needs more funding to serve taxpayers and increase voluntary compliance."

Cutbacks at the IRS in recent years have led it to reduce its work -- for example, it has stopped preparing many taxpayers' returns. At the same time, it has more work to do, such as dealing with tax changes related to the Affordable Care Act (otherwise known as Obamacare). Wait times for those seeking help or answers to questions have grown much longer.

According to Forbes, "This year, [the IRS has] announced they'll only answer 'basic' questions during the tax year and none at all after that." Olson rightly noted that "it is a sad state of affairs when the government writes tax laws as complex as ours -- and then is unable to answer any questions beyond 'basic' ones from baffled citizens who are doing their best to comply." It's hard to see IRS budget cuts as helping U.S. taxpayers.

Crazy math
For proof that this was a poor decision, take a close look at this eye-popping IRS data: In her 2013 report to Congress, Olson noted that for every dollar appropriated to the IRS in fiscal 2013, it collected $255. The report adds: "If the Chief Executive Officer of a Fortune 500 company were told that each dollar allocated to his company's Accounts Receivable Department would generate multiple dollars in return, it is difficult to see how the CEO would keep his job if he chose not to provide the department with the funding it needed. Yet that is essentially what has been happening with respect to IRS funding for years."

Clearly, reducing the funds that keep the IRS operating is likely to only decrease its effectiveness, leaving less money for public needs such as roads, education, a judicial system, and so on. Billions in tax dollars go uncollected each year, from companies and individuals alike. Providing the IRS with the funding it needs is the smartest tax move we can make, as it would bring in more of those tax dollars and allow the IRS to provide the services taxpayers need.

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Selena Maranjian, whom you can follow on Twitterhas no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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