Why does it matter that IRS funding and the number of its employees is significantly reduced? When IRS funding and employees are cut, the number of audits that can be performed is reduced. The amount of assistance provided to taxpayers is reduced. People have figured out that this means the chances of being caught when underreporting tax liabilities, whether through understating income or overstating deductions and credits are reduced. Though some taxpayers and tax return preparers who understate tax liabilities are caught, for each one who is there are many more who win the "audit lottery." Even though some tax return preparers who go so far as to commit fraud are identified and convicted, there are others who take the risk knowing that the odds of being caught are less than 100 percent.
Why is this a problem? Reduced IRS resources reduces federal government revenue. In turn that increases the deficit. Deficit increases provide cover for politicians who want to cut federal programs, even to the point now of wanting to cut Medicare and Social Security payments.
Why do politicians want to cut federal programs? Though there are some programs they dislike for ideological reasons, there are many other programs that they want to shift to the private sector. After all, it is the private sector that funds their campaigns and wants to take over and then own and operate federal programs. The private sector sees these programs as enterprises that can be turned into profit centers. For example, they see monetary rewards in charging people for weather forecasts and so long as the federal government provides that information it takes a large potential customer base away from the private sector.
Why does the private sector want to increase its profits? It wants to continue the trend that has shifted increasing amounts of income and wealth into the top 0.1 percent and top 0.5 percent, which increases income inequality. The private sector claims that increasing the income and wealth of the super-rich benefits everyone else but by now many people are waking up and realizing that supply-side economics and trickle-down theories are jus that, theories that worked for the advocates of those approaches to public finance but that as a matter of practical reality left everyone else worse off.
Unless the political climate changes, any proposal to increase IRS funding will go nowhere. Without an increase in IRS funding, the nation faces either the catastrophic consequences of federal deficits that are too high or cuts in programs that will make the economic plight of most Americans even worse. Or both. That's what happens when the federal tax revenue process is broken and doesn't get fixed.
