Part-time Office of Management and Budget Director Mick Mulvaney (He’s also acting director of the Consumer Financial Protection Board) committed big sin of omission in this letter he sent Tuesday to House Appropriations Committee Chairman Rodney Frelinghyusen (R-NJ) about the extra funding being provided to the Internal Revenue Service.
The letter states that the Trump administration “appreciates” the additional spending. It goes on to say “…every dollar invested in tax enforcement would, over time, reduce the deficit by at least five dollars.”
I added the emphasis in the above quote because it points directly to what Mulvaney isn’t saying: This is going to result in lower federal revenues and a higher budget deficit over at least the next few years and possibly forever.
This was explained to me years ago by Roscoe Egger, Ronald Reagan’s first IRS commissioner, when we both worked at what was then called Price Waterhouse (Now PWC).
First, the extra dollars IRS receives by themselves will increase federal spending and the deficit.
Second, it will take IRS close to a year to hire the additional employees and there will be recruitment costs.
Third, the new employees will need be trained and that typically takes an additional one to two years.
Fourth, IRS typically uses its best auditors and other staff to do the training. That reduces current productivity and revenue collection.
In other words, there will be no additional revenue for at least three to four years. In fact, if enforcement activity goes down because of the training, there could (or will) be less.
Fifth, although Mulvaney mentions that the additional funds are for “tax enforcement,” the White House really wants a higher appropriation so IRS can draft the regulations for last year’s big tax cut — which lowers rather than raises revenues — faster.
One final note. Mulvaney’s claim in the letter that every addition dollar spent (he says “invested”) would “reduce the deficit by at least five dollars” at best is highly questionable. Unlike the one noted above, this is a Mulvaney sin of commission.