The issue is that the IRS can spend e.g. $40 on enforcement to collect $100. But what they're really doing is auditing several totally innocent people to find someone who has significantly underpaid and covers the costs of the audits for the others. The problem with this is that it imposes expensive and extremely stressful audits on several totally innocent people, and if you count their side of the cost, the "profits" are totally destroyed. The taxpayer has a better expected value to eat the cost of a certain amount of tax fraud than to pay the higher cost of a certain number of fruitless audits.
Moreover, the purpose of the IRS is to collect money to fund government programs, not to collect money to fund IRS audits. The money spent doing audits is a dead-weight loss which can't go to programs. Meanwhile the ordinary IRS collection efficiency is >99%. Inverting that and doing audits until the efficiency fell to zero would be a tremendous increase in inefficiency and dead-weight losses, but that's where you would be if the metric was "positive ROI" from the perspective of the IRS.
>But what they're really doing is auditing several totally innocent people to find someone who has significantly underpaid and covers the costs of the audits for the others.
Is that's what's happening though? Although the budget cuts have reduced the amount of audits across the board, audits of the rich has dropped faster than everyone else[1]. Therefore, it's reasonable to assume that the rich has benefited from this policy more than the average joe.
Audits skew disproportionately to people with money to begin with because that's where the biggest potential gains are. That's also why there are audits of people receiving the EITC -- it has a high enforcement efficiency because that type of fraud is frequently unsophisticated and easy to uncover, but can amount to thousands a year.
The problem with audits of "the rich" is that the gains realized in practice often aren't that large, because their audits are the most expensive even if they have the most potential for uncovering fraud. So they go out and audit several "rich" small businesses, impose major costs on each of them, and uncover significant fraud in one. Which covers the costs of the IRS in doing the other fruitless audits, but not the costs of the other small business owners, who are understandably pretty upset at having to pay a bunch of uncompensated costs and their own time for an audit that didn't uncover anything.
What they ought to do is have the IRS compensate the subjects of an audit for their time and costs, but you can imagine how expensive that would be for the government. (It's already that expensive for the taxpayer.)
That's assuming people have any idea how many audits the IRS is doing, or will do at any point in the next few years/administrations, and are taking it into account when deciding whether to commit tax fraud. People don't work that way.
Also, they haven't actually stopped doing audits, so enjoy playing Russian Roulette with three bullets in the chamber. Still doesn't sound like a good idea even if there used to be four, does it?
Sure, people don't know the actual number, but they know that some enforcement is done, and some enforcement must be done for real for the effect to ripple through society. If you see your neighbour get away with it, it does entice you. The easy counterexample is Greece, where enforcement is notoriously low.
This is a common trope but is hugely misleading.
The issue is that the IRS can spend e.g. $40 on enforcement to collect $100. But what they're really doing is auditing several totally innocent people to find someone who has significantly underpaid and covers the costs of the audits for the others. The problem with this is that it imposes expensive and extremely stressful audits on several totally innocent people, and if you count their side of the cost, the "profits" are totally destroyed. The taxpayer has a better expected value to eat the cost of a certain amount of tax fraud than to pay the higher cost of a certain number of fruitless audits.
Moreover, the purpose of the IRS is to collect money to fund government programs, not to collect money to fund IRS audits. The money spent doing audits is a dead-weight loss which can't go to programs. Meanwhile the ordinary IRS collection efficiency is >99%. Inverting that and doing audits until the efficiency fell to zero would be a tremendous increase in inefficiency and dead-weight losses, but that's where you would be if the metric was "positive ROI" from the perspective of the IRS.