The Economist April 16th 2022 23
United StatesTaxationinAmericaIn praise of the IRS
WASHINGTON, DC
The much-maligned tax agency, battered by the pandemic,
has kept the economy going“N
ow youmay only see a pile of re
ceipts. But I see a story. I can see
where this story is going. It does not look
good.” These lines, spoken by an Internal
Revenue Service agent in “Everything
Everywhere All At Once”, a dark scifi com
edy now showing in cinemas, is perfectly
calibrated to strike fear into the hearts of
Americans ahead of their taxfiling dead
line on April 18th. The agent has a paper
trail neatly arrayed on her desk as she con
ducts an audit. Reality is more frightening,
for the exact opposite reason. “Paper is the
irs’s kryptonite,” Erin Collins, a watchdog
within the irs, recently told Congress.
“The agency is buried in it.”
The irsentered this tax season with abacklog of 24m returns, 20 times worse
than normal, as it struggled to recover
from pandemic disruptions. Good luck to
anyone wanting help by phone: just one in
nine callers reached an agent last year, ac
cording to Ms Collins. Now in the midst ofa hiring drive, the irsthinks it can clear the
backlog by the end of 2022. But it will be up
to two years late in processing many re
turns. “It’s a crisis,” says Mark Everson, for
mer head of the irs. “Millions of people
and businesses who were due tax refunds
don’t have that money yet. This is very det
rimental for compliance.”
Even without the pandemic, the irs
was struggling, the victim of chronic un
derfunding. Spending on the agency has
declined by nearly 20% since 2010. At the
same time, the number of tax returns has
increased by 20%. The backbone of the sys
tem, a nationwide taxpayer database, is
built on top of a 1960s computer language
rarely taught in schools. One major ele
ment of President Joe Biden’s legislative
programme is a funding boost for the irs.
Yet that is stalled, along with much of the
rest of his agenda.
It is hard for lawmakers to summon en
thusiasm for the irs. Who enjoys paying
taxes? Even for those who recognise the so
cial value, the act of filing tax returns is a
hassle. The 1040 form, the basic document
for personalincometax reporting, came
with just one page of instructions when in
troduced in 1913. This year’s version has 230
pages of instructions when counting all
the branches added to it, reckons Demian
Brady of the National Taxpayers Union
Foundation, an advocacy organisation.
Like any good story, though, there is al
so a plot twist. Despite its awful backlog,
the irshas, from another perspective, had
a very good pandemic. It has played a criti
cal role in delivering support to Ameri
cans. And it has been surprisingly efficient
at it. For each of the three rounds of stimu
lus payments, the irswas the conduit.
Within two weeks of Mr Biden’s signing of
the stimulus bill in March 2021, for in
stance, it sent out $325bn via 127m separate
payments, mainly by direct bank deposit.
Some people fell through the cracks and
cheques took longer. But most got the
money quickly. The irsoperated at even
greater frequency in making childtax
credit payments every month.
Along with doling out vast sums of
cash, the irsalso took less in. The govern
ment gave the unemployed tax breaks on
their benefits and gave businesses tax
breaks for retaining workers. It also ex
panded the earnedincome tax credit, a
subsidy given to low earners, one of Amer
ica’s biggest antipoverty programmes.
Putting it together, a poor family with two
young children could expect $20,000 from
the irslast year, double what they would
normally receive. In all, the agency paid
out more than $600bn in pandemicrelat
ed support in 2021, equivalent to about
twothirds of Social Security spending in
the federal government’s budget. “We have
seen a substantial share of what used to be→Alsointhissection
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