Monday, May 20, 2013

IRS in Its Own Words: "Disburse Social Benefits to Target Populations"

    The Internal Revenue Service has been in the headlines for more than a week now as details of its targeting of conservative non-profits have trickled out.  Senate hearings this week (via Politico) on Apple's tax strategies have indirectly referenced the IRS as well as Democrats decried the huge tech company's efforts to avoid turning over any more of its money than necessary to Uncle Sam's tax collector.  But a 2011 Annual Report from the Taxpayer Advocate Service (TAS) of the IRS suggests that Apple is simply following the counsel that the TAS offers.
    The section of the report in question is called Introduction to Diversity Issues: The IRS Should Do More to Accommodate Changing Taxpayer Demographics.  The document begins with some history of the IRS and its mission:
When the federal individual income tax was enacted in 1913, it applied to high-income taxpayers.  At that time, the predecessor to the IRS began as a hands-on collector of various excise and other taxes.  In 1942, Congress enacted the “greatest tax bill in american history” largely to fund the U.S. effort in World War II, expanding the income tax to the middle class.  At this juncture, the Treasury made an historic effort to popularize the income tax, and employed tactics such as famously deploying the Disney cartoon character Donald Duck as a mascot of the public fisc.  Since then, however, the IRS has not made a parallel effort to popularize the income tax to an increasingly diverse population.
    It is almost unimaginable that the IRS could even contemplate how it might "popularize the income tax", and yet the report proceeds to, if not popularize the income tax itself, attempt to revive the image of the IRS in the eyes of an "increasingly diverse population."  One of the recommendations is titled "Conduct Targeted Outreach to Increase Take-up Rate for Special Tax Provisions." [emphasis added]
Develop a pilot program to better communicate about special tax beneits in which participation is key, e.g., health-care provisions under the patient protection and affordable care act of 2010.  While the traditional mission of the IRS was to collect tax, now the IRS administers several special tax breaks that effectively disburse social benefits to target populations (e.g., small businesses or low income taxpayers).  A measure of success for such programs is their take-up rate, which means that the IRS must not only counsel compliance with the tax law but also encourage participation by taxpayers, many of whom may not otherwise have to file returns.
    This admission of the IRS's role in the government's social engineering is focused on low income taxpayers and small businesses, and yet the high-income taxpayers, such as Apple, would seem to have just as much right to take advantage of what the tax code has to offer as the former groups.  As the Politico article noted, "lawmakers behind the inquiry did not describe Apple’s tax conduct as illegal."  Apple says that "the company “pays all its required taxes, both in this country and abroad.” And Apple stressed it does not use “tax gimmicks.”"
    It certainly speaks to the social engineering aspirations of those in Congress who are critical of companies that pump billions of dollars into the economy and provide thousands of jobs for using tax law to keep as much of their own money as possible while on the other hand using the IRS to "disburse social benefits to target populations."  Certainly both Republicans and Democrats have used the tax code over the years for various social engineering schemes, or at the very least have shaped the tax code to influence certain behaviors.  And with the discovery of the targeting of conservative groups for extra scrutiny, apparently the IRS itself has an agenda of its own.
    The income tax marks its centennial this year.  While through the 1940s, the "traditional mission of the IRS was to collect tax," these two episodes are just further examples of how intrusive government has become thanks to the 16th Amendment.  Further Congressional hearings, investigations and reforms in the coming months may reveal if there is hope for reform, or if the genie is out of the bottle for good.

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