Chaotic IRS Filing Season Shows the Perils of Running Social Policy Through the Tax Code

As the deadline for the 2022 tax filing season nears, the IRS faces scrutiny for its backlog of returns, inaccessible taxpayer service, and delays in issuing certain refunds. As of January 28th, the Internal Revenue Service (IRS) had 23.7 million returns awaiting action, compared to a typical backlog at that point of roughly 1 million returns. IRS Commissioner Charles Rettig recently testified the IRS will catch up on the return backlog by the end of the year by creating surge teams and planning to hire an additional 10,000 workers, but that will do little to alleviate the pain of this year’s filing season ending in less than a month.

In many ways the current chaos is the culmination of a problematic trend in fiscal policy. For the past few decades, policymakers have increasingly relied on the tax code to deliver major social spending initiatives, adding benefits administration to the IRS’s normal responsibilities as a revenue collection agency. At the same time, IRS capacity has not expanded enough to match its major new responsibilities. In the long term, the most stable solution is to move social spending out of the tax code and let the IRS focus its resources on revenue collection.

In his 1996 State of the Union Address, Bill Clinton famously said, “The era of big government is over.” But policymakers did not just abandon their social and welfare policy goals. The full context of his quote: “…the era of big government is over. But we cannot go back to the time when citizens were left to fend for themselves.”

Politicians were in a difficult spot: they had social policy goals, taxes were unpopular (just ask former president George H. W. Bush), and the political environment was unfriendly to more government spending. The apparent solution was to turn social policy into tax cuts. By creating new tax credits in lieu of traditional welfare programs, expansions of the social safety net could be framed as tax cuts.