Can shrinking the IRS, and thereby tax collections, shrink the government? That’s the libertarian perspective Jeffrey Miron explores in an essay at the Cato Institute. He writes:
On February 20, the IRS fired 6,700 employees, many of whom worked in enforcement and compliance. Some warn this will weaken enforcement, deepen fiscal imbalance, and make evasion easier. Others see the firings as a long-overdue rollback of an overreaching bureaucracy.
A different question of interest—especially to libertarians—is whether shrinking enforcement and therefore tax collections is an effective step towards limited government.
This approach, known as “starve the beast,” was popularized by Nobel laureate Milton Friedman, who argued that reducing taxes will curb federal spending, as when parental reductions in allowances help limit their children’s spending.
This perspective is not compelling on a priori grounds. By slashing taxes, the government might reduce the perceived “price” of spending, creating a “fiscal illusion” where voters demand more government. Empirical evidence confirms no negative relationship between government receipts and spending. Reduced enforcement mainly shifts who pays from rich to poor.
Thus, independent of debates over the correct size of the IRS, libertarians should focus on reducing non-IRS spending and simplifying the tax code. With lower spending, the need for every dime from taxpayers goes down. And a tax system with fewer loopholes would make compliance easier while reducing the need for aggressive enforcement.
Action Line: The government is too big. Whether you starve it out or cut off its head, it must shrink. Click here to subscribe to my free monthly Survive & Thrive letter.
