United We Stand, Divided We Fall

Harry, you again are too soft.  Cutting the IRS is like cutting off your nose to spite your face. It is the height of stupidity.  By cutting the IRS by $1 billion since 2011, the Congress and the President have increased the deficit and the US debt by at least $21 billion to $54 billion over that time period.  By not adding resources to drive the $450 billion annual  tax gap down and to curtail the tax refund fraud that is occurring adds tens of billions to that deficit and debt.  This behavior by the Congress and the President borders on the criminal neglect of the finances of the United States. We need a major change in their collective judgment and action or changes in our elected leaders.   

Sam Allen

Jim Buttonow, CPA/CITP wrote an article entitled The Impact of Underfunding the IRS which appeared in the CPA2Biz on January 27, 2014. It was a great article and reinforces what we have been discussing for months. There are consequences when you cut the resources the IRS has to administer and collect taxes. He notes 5 consequences. The first is that ‘the IRS cannot collect all of what the government is already owed’. The cost of cutting the IRS by $1 is between $7 and $17 in reduced taxes collected, a steep price to pay for either across the board cuts or a political witch hunt however justified. The second consequence noted by Buttonow is ‘the IRS cannot help all of the taxpayers who try to contact the agency’. He states that the ‘agency answered only 68% of phone calls and 52% of mail correspondence in a timely manner’ in 2012. That is terrible customer service especially given the customer potentially owes you money. The third consequence is that ‘fewer IRS resources discourage voluntary compliance’. We already have a problem with the tax gap of $450 billion per year and fewer audits and other collection efforts will make that problem or tax gap worse. As we have seen from the results of the current IRS audits, these audits generate boatloads of uncollected taxes especially for those making over $200,000. We should be funding audits of 100% of the taxpayers over $200,000 and substantially increasing the audits of those under that amount. To do otherwise and especially decreasing audits and collection efforts is not sensible. The fourth consequence he noted was that ‘the IRS and taxpayers are overwhelmed with tax code changes’. He indicated that there have been more than 5,000 changes to the tax law since 2001. This is now compounded by the burden the IRS has for administering part of the new Obamacare law. From a taxpayers and a tax preparers perspective, it has meant the use of more complex primary tax documents (going from the 1040 EZ to the 1040) as well as the required utilization of many more supporting documents. The fifth consequence he notes is ‘that the budget cuts create a barrier to IRS technological innovation that would provide more efficient long-term solutions’. The IRS computer systems are old and need to be upgraded. They also need to get ahead of the curve on technology to prevent the huge tax refund fraud that we have recently discussed. In essence, cutting the IRS is much more than counterproductive.

We recommend adding $5 billion to the IRS budget for FY 2014. $1 billion will be used to restore the cuts to the IRS budget since FY 2011. The other $4 billion will be used, as we have discussed before, for additional audits and other collection activities designed to shrink our $450 billion tax gap to a more reasonable level as well as to counter the exploding tax refund fraud from gangsters and other thieves. These added funds will cut the current federal deficit by 33% to 67% depending on the results. The President and the Congress should act immediately. Time is money and time is running out.
Harry Pukay-Martin

Harry, really!  The Congress and the President are being absolutely irresponsible and throwing away money when we have a deficit that is nearly $700 billion.  They should be fired!   Taxpayers, especially the more well to do, are not paying what they rightfully owe.  The results of IRS audits and collections show that.  We only audit 12% of the over $1,000,000 income returns and generate over $4 billion.  We only audit 3% of the $200,000 to $1,000,000 returns and generate nearly $3 billion.  Each dollar spent on these paper and field audits generates many  more additional dollars for the US Treasury.  The gangsters and other thieves are costing the Treasury between $7 billion and $21 billion a year in tax refund fraud.  Stop this madness and add the $5 billion of added funding to the IRS.  The Congress and the President must act.   If the Congress and the President won’t act, we can solve the problem with the November 2014 elections or sooner if we follow the impeachment route.

Sam Allen

Before the FY 2014 IRS budget was cut by $526 million from the FY 2013 level, the National Taxpayer Advocate, Ms. Nina E. Olson, published her annual report to Congress and pleaded the case for additional IRS dollars not less. The IRS budget is now at the FY2008 level. The cuts to the IRS budget since FY 2011 have been over $1 billion. This is a national tragedy and adds further to our national deficit and debt. Ms. Olsen indicated to Congress that these combined cuts are ‘short sighed and counter-productive’ and will lead to less tax collections and less service to the public and its tax advisors. She indicated that ‘The IRS desperately needs more funding to serve taxpayers and increase voluntary compliance.’ Further, she noted that the IRS ‘had fewer employees than four years ago, but those who remain are less equipped to perform their jobs’ as both employee counts and training funding have decreased substantially. For every dollar spent on the IRS, the US Treasury receives between $7 and $10 of added revenue given various estimates of the return on these budget dollars. A tough minded business person would keep spending on the IRS until the economic return was $1 of IRS costs versus $1 of additional revenue. We are a far cry from that figure.
We recommend adding $5 billion to the IRS budget for FY 2014. $1 billion will be used to restore the cuts to the IRS budget since FY 2011. The other $4 billion will be used, as we have discussed before, for additional audits and other collection activities designed to shrink our $450 billion tax gap to a more reasonable level as well as to counter the exploding refund fraud from gangsters and other thieves. These added funds will cut the current federal deficit by 33% to 67% depending on the results. The President and the Congress should act immediately. Time is money and time is running out.
Harry Pukay-Martin

Harry, you are not pointed enough.  We have an exploding tax refund fraud.  We have an exploding deficit.  Why can’t Congress and the President get off their backsides and pass further funding for the IRS to stop the tax refund fraud and to add revenues to the US Treasury under current tax laws.   There are $450 billion of uncollected taxes available each year.  We just need to give the IRS the resources to stop the fraud and collect the taxes owed.  This cuts the size of the deficit by 33% to 67% depending on the results of these efforts.

Sam Allen

In the Bloomberg Business Week magazine of January 13-19, 2014, they produced an article on the latest in Vice and Gangland activities. The latest Gangland gig is tax refund fraud. It does not require guns or violence or death or long jail terms. It just requires identity theft, a computer with tax software, and a little elbow grease. The take is in the $ millions for the local gangland member though $ billions in losses to the US Treasury. The hub appears to be Tampa and Miami Florida today but may be moving as local, state, and federal law enforcement personnel have concentrated their resources and expertise to slow down the latest crime wave in those areas. Given this loss of tax receipts in the billions of dollars and the diversion of IRS personnel to this effort, the IRS requires added resources. We recommend adding $4 billion to the IRS budget for FY 2014. $1 billion will be used to stem this fraud. The other $3 billion will be used, as we have discussed before, for additional audits and other collection activities designed to shrink our $450 billion tax gap to a more reasonable level. This single step will cut the current federal deficit by 33% to 67% depending on the results. Let the President and the Congress act now.
Harry Pukay-Martin

The Congressional Budget Office released new projections through 2088. They tell the tale of what increasing federal debt obligations and the related interest mean to the budget. In effect, interest expense becomes the second highest budget item after healthcare programs* starting in 2050. Interest expense was only $220 billion in FY2012 or 6% of the budget. In the Congressional Budget Office projections, interest expense eats up 10% of the budget by 2030, 20% by 2060 and over 30% by 2088. As we have seen with the recent budget compromise in December 2013, discretionary programs such as defense, food stamps, and medical research take the brunt of cuts as the budget is brought more into line. Interest expense on the Federal Debt could eliminate most of these discretionary programs completely in the future unless action is taken. The deficit needs to be resolved now with cuts in both entitlements and discretionary programs and increases in taxes and user fees. The President and Congress must act. If they do not, be very afraid for our future and that of our children and grandchildren.
Harry Pukay-Martin
*Medicaid, Medicare, the Children’s Health Insurance Program-CHIP, and new subsidies to individuals from Obamacare

In an editorial by the Columbus Dispatch on January 2, 2014 entitled ‘No leads nowhere’ and subtitled ‘Congress, President should end impasse, return to compromise’, the editor hit the nail on the head. There needs to be a compromise to solve the countries problems and to fix entitlements including the Social Security Retirement Program. The editorial notes that the entitlement programs ‘consume about 60% of the federal budget and costs are growing at an unsustainable rates’. In order to get these programs in control and solve the deficit problem, entitlement spending must be cut and taxes or fees to support those programs must be raised. We at United We Stand agree. Our program to solve the Social Security Retirement Program’s insolvency and its contribution to the deficit does raise taxes and does decrease expenditures. It is time for the Congress and the President to act. The budget needs to be balanced now.
Harry Pukay-Martin

Harry,  you were too kind to Ms. Harrop.  Her comments were not only naïve but inane,   had no basis in fact, and are extremely dangerous in solving the long term insolvency of the Social Security Retirement program.  She is lulling the public into a slumber instead of arousing them to action.  She is praising a soft headed new give away program by two liberal democrats rather than praising other proposals that attempt to address the real issue.  How absurd!  I am facing a 25% cut in my Social Security Retirement benefit when I am 83, a time when I cannot return easily to work again.  Our children and grandchildren are facing an extremely bleak future without the solvency of this program.  I want this issue addressed now by Congress and the President before it is too late and it is getting close to being too late as the national debt continues to rise and the interest associated with it continues to eat at all our other programs including the Social Security Retirement program. 

Sam Allen

Froma Harrop in her recent editorial comment in the Columbus Dispatch headlined that the ‘Social Security program is in a better place these days’ and that ‘as many middle-class Americans survey the ashes of more recent reversals in their finances…Social Security is looking good.” Naïve is the kindest word to describe her editorial comment. She is aware that the program is projected to go bankrupt by 2033 but indicates that simply by raising the income cap on Social Security contributions of $113,700 in 2013, the program can be brought back to solvency. In addition, she further postulates that such a step will fund the proposal by Democrats Harkin and Brown to raise the Social Security Retirement benefits by $70 per month and to favorably alter the cost of living adjustments. Her numbers don’t add up. As we have noted before, if you raise the cap to 90% of the wages paid (the historical number used and continued to be advocated by most commentators advocating a tax increase), only 36% of the deficit of the Social Security Retirement program is covered. If you raise the cap to all wages paid, then you cover 98% of the deficit of the current program. Such a step would not cover the deficit caused by the Harkin-Brown proposal. The Social Security Retirement program is not in a better place and it is not looking good to most people. Many of us currently in retirement want this issue addressed responsibly now so that we don’t have our retirement benefits cut by 25% in 2033. We also want our children and grandchildren to have this program to support them in their retirements. Social Security Retirement will only be in a better place and look good when responsible action is taken by Congress and the President. We hope they act in 2014.
Harry Pukay-Martin