–Good news, bad news: IRS budget cut

Mitchell’s laws: Reduced money growth never stimulates economic growth. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Economic austerity causes civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.

Here’s a good news, bad news story. First the good news.

Bipartisanship lives! And it will likely cost taxpayers money.
Posted by Suzy Khimm,10/05/2011

(SOURCE: BLOOMBERG) The GOP-crafted House appropriations bill cuts the agency’s budget by more than $600 million, compared with 2011 funding levels, while the Senate has proposed more than $450 million in cuts. Perhaps most significantly, both chambers would reduce funds for enforcement in 2012 by more than $266 million — more than $700 million under what the agency had requested for the year.

House Democrats, in particular, have denounced the bipartisan proposals for a funding cut, saying it would hamper the IRS’s ability to close the “tax gap” — the estimated 16 percent of revenue that the government loses because Americans fail to pay their taxes in full. “The IRS estimates that this cut will end up costing $4 billion per year due to the lack of enforcement on tax cheats,” Rep. Norm Dicks said of the House proposal. “This cut literally increases the deficit.”

Of course, Ms. Khimm doesn’t know what she is talking about. How does collecting less tax cost taxpayers money? Right. It doesn’t. That “cost taxpayers money” phrase has to do with the myth that taxes pay for federal spending.

That’s true in monetarily non-sovereign governments (states, counties, cities, Greece, Ireland), but is not true for the Monetarily Sovereign U.S. federal government. Cutting U.S. federal taxes saves taxpayers money. Period.

Now for the bad news:

The National Treasury Employees Union, which represents federal workers, warns that the cuts would result in layoffs of 3,000 to 4,000 IRS employees, increasing the burden on an agency that’s already short-staffed. A 2011 report by the Treasury Inspector General concluded that hiring of new revenue officers hasn’t kept pace with attrition, even as the number of tax returns continues to rise and the tax code itself has grown more complex.

This adds people to the unemployment lines. Very bad. They should be paid for at least a year, or given other federal jobs.

Now for more good news:

As a result, the percentage of delinquent tax accounts that have been resolved “has steadily decreased,” the Treasury IG concludes.

Ultimately, the lost potential revenue could end up outstripping the upfront savings from IRS budget cuts. The agency’s “general rule of thumb is every additional dollar spent on enforcement brings $4 to $5 dollars of additional revenue . . . and there generally has been a reasonable return on enforcement dollars,” says Eric Toder, co-director of the Urban Institute-Brookings Tax Policy Center. “I don’t think, at the end of the day, this really saves the government any money.”

Someone please tell Mr. Toder that a Monetarily Sovereign government doesn’t need to “save” money. It pays its bills by instructing creditors’ banks to mark up the creditors checking accounts. The federal government can send these instructions, endlessly.

Update: A Senate Democrat who works on appropriations issues further explains the party’s thinking on the IRS cuts: “They are right –they took a sizable hit…With less money to allocate, cuts had to be made and because of its size, IRS – which represents about 54% of the subcommittee’s discretionary funding – took a big hit. They’ll still be taking in revenue, but it is counterproductive, unfortunate and something everyone hopes can be fixed…The point is it’s about choices and everyone making do with less.”

No, it is productive and fortunate, and if by being fixed, the Democrat means to find a way to collect more taxes, that’s one heck of a lousy “fix.”

In this regard, here is the full text of a letter I sent to Bruce Dold and Tony Hunter, the top two executives of the Chicago Tribune, with whom I have been corresponding:

Bruce and Tony,

Here is a great idea for a timely editorial: “How reducing the federal deficit, with higher taxes and/or reduced federal spending, will stimulate economic growth.”

Rodger Malcolm Mitchell

I don’t expect a response, though I’d love to see them try to write that editorial.

Only one dunce cap for Suzy Khimm. She’s just the messenger, and as a typical media writer, she has been trained it is not necessary to understand economics when writing about economics.

Rodger Malcolm Mitchell

No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. The key equation in economics: Federal Deficits – Net Imports = Net Private Savings


3 thoughts on “–Good news, bad news: IRS budget cut

  1. too bad they will use this as an excuse to cut the safety net. in my opinion we would be better off taxing the greedy bastards that are running the country. i understand mmt(the gist of it), but that is not the “rules” they are playing by. the future does not look very promising.


  2. Hello, Roger.

    While I agree with your position that lower taxes will lead to a larger economy, the tone of this post seems to be that your biggest problem is that there will be more unnecessarily unemployed – with the silver lining that there will be lower taxes.

    My take is that the government should collect as much of the legislated taxes as possible. Once people start figuring out that they can simply not pay, the whole system could fall apart. The solution is lower rates, not uneven compliance.


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