Noted economist Robert H. Frank (Wikipedia here) has written an excellent NYT op-ed: Without More Enforcement, Tax Evasion Will Spread Like a Virus (NYT 10/30/20), here. Excerpts
Few people enjoy paying taxes, but as Oliver Wendell Holmes Jr. reminded us, “Taxes are what we pay for civilized society.” On reflection, most of us therefore offer at least implicit support for penalties against tax evasion — penalties that have little meaning unless backed by significant enforcement resources.
Yet prodded mainly by anti-tax Republicans, Congress has cut the Internal Revenue Service budget steadily since 2011. By 2019, the agency was auditing only one in every 222 individual returns, down from one in 90 in 2011. Similar reductions have occurred for corporate returns, and were proportionately larger for the wealthiest individuals and largest corporations.
These cuts have not saved the government money. The former I.R.S. commissioner John A. Koskinen estimated, for example, that every $1 trimmed from the agency’s budget has resulted in $4 in lost revenue. But this estimate refers only to direct, or first-round, losses. Because the extent to which people comply with tax laws depends strongly on the behavior of others around them, the ultimate revenue losses are certain to be much larger.
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What the reductions in I.R.S. funding will continue to unleash, then, is a characteristic feature of all behavioral contagion processes: an explosive chain of feedback loops that greatly amplify any initial change in behavior.
