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Taxes: or How I Learned to Stop Worrying and Love the IRS
because in the wrong hands, it's another tool of inequality
Joe is Wypoxic
February 23, 2026
Welcome to Chapter 4 in my ongoing (and too sporadic) series on “Hidden Structures that Create and Maintain Gross Inequality”.
Yes. today I’m going to write about why the Internal Revenue Service - the government agency we all love to hate - is not only essential, but how it has been - and still is being - used as a tool to increase inequality.
(For those of you not familiar, the title of today’s post is an homage to one of my favorite movies, - still a must see - Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb.)
MISSION OF THE IRS
Let’s start with the basics. The IRS is authorized under Section 7801 of the Internal Revenue Code. The secretary has full authority to administer and enforce the internal revenue laws and has the power to create an agency to enforce these laws.
, The IRS’ mission is to:
“Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.”
This mission statement describes our role and the public’s expectation about how we should perform that role.
In the United States, the Congress passes tax laws and requires taxpayers to comply.
The taxpayer’s role is to understand and meet his or her tax obligations.
The IRS role is to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share.
This may seem basic to some, but IMHO, most people don’t understand that the IRS does not make policy or tax law. It’s job is to enforce the laws that Congress passes regarding taxes and to collect taxes owed based on those laws.
WHY THE IRS IS NEEDED
My spouse - Mrs. Wypoxic - is a small business entrepreneur. Her and her partner sell goods and services to their clients. Some of these generally well-heeled clients don’t pay in a timely manner, putting her in a tough spot, since the business has almost always already paid its wholesale vendors for the items they sell to their clients. So what does Mrs. Wypoxic do? She follows up by emailing, calling or otherwise communicating with clients to try and collect the money her business is owed. In essence, Mrs. Wypoxic is serving as the Accounts Receivable Department for her small business.
Most businesses have, and almost every large business has, an A/R (Accounts Receivable) Department to ensure they get paid by customers and therefore can stay solvent (even if it’s as informal as Mrs. Wypoxic sending emails to her clients). Business owners and managers do not like having to devote resources (i.e., money) to a department that is not directly revenue generating. However, they do it because not everyone pays their bills in a timely manner, and some don’t pay their bills at all.
Simply put, the IRS is the A/R Department for the United States. We may not like it, but someone has to make sure EVERYONE pays their taxes so the United States can pay for all the things we think government should deliver.
USING THE IRS TO PERPETUATE INEQUALITY
The Biden Administration and Congress passed a law called The Inflation Reduction Act of 2022. this law allocated nearly $80 billion in new funding for the IRS over a ten-year period with the aim of modernizing the agency and improving tax enforcement and taxpayer services. The law included funds for:
Enforcement: Over $45 billion dedicated to strengthening enforcement activities — such as improving audits and compliance efforts — especially targeting large corporations and high-income taxpayers.
Modernization & Operations: More than $25 billion for operations support, including upgrading outdated technology and systems.
Taxpayer Services: About $3 billion aimed at enhancing taxpayer services such as customer assistance, reducing processing backlogs, and improving online tools.
IT & Business Systems Modernization: Additional funds (over $4 billion) for updating the IRS’s computer systems to better handle returns and taxpayer interactions.
Almost immediately after winning back the House in 2022, Republicans began trying to claw back the funds allocated to the IRS mentioned above. The first bill introduced by Republicans in the 118th Congress was the Family and Small Business Taxpayer Protection Act which would rescind the expansion of the Internal Revenue Service included in the Inflation Reduction Act of 2022. They succeeded in removing nearly ALL of the funds allocated for increased enforcement.
Proponents of the bill, the Congressional Republicans, claim that the bill is necessary to protect middle-class Americans from increased audits and scrutiny from the IRS and hold the institution accountable.[1] Opponents of the bill, Congressional Democrats and President Joe Biden, claim that the bill would allow higher-income Americans to avoid paying taxes and would increase the national debt.
Let me be clear. NO ONE - including me - wants to be audited by the IRS. But that’s their job - to ensure that taxpayers pay what they owe.
Here’s the rub. regular folks - wage/salary earners - have federal taxes automatically withheld and paid to the IRS by employers, regardless of the IRS’ funding levels or ability to make collection efforts. The people who benefit from an IRS without the finding/staffing to go after tax cheats and avoiders are non-wage earners - the wealthy investor class. And the less the wealthy pay what they owe, the more the rest of us have to pay in higher tax rates and increased interest on the national debt to make up for wealthy people keeping money that actually - by law - belongs to all of us.
Here’s what Michael Green writes in a recent post called “American Exceptionalism” [emphasis mine]:
“Where the State Actually Fails
The narrative machinery of the current moment—amplified by figures like Elon Musk through X’s new long-form content prizes—wants you fixated on government spending fraud. The inaugural $1 million X article award went to a piece casting Deloitte as a “$74 billion cancer metastasized across America,” alleging that taxpayer dollars were siphoned and that there were revolving doors of insiders. Runners-up included exposés on welfare fraud in Minnesota—state-level fraud, notably, not federal. The awards align neatly with Musk’s DOGE-adjacent critiques of government waste.
Here’s the irony: Musk himself faces fraud accusations ranging from misleading claims about Tesla’s Full Self-Driving capabilities to the controversial SolarCity acquisition—widely seen as a bailout for his cousins’ failing company. But the deeper irony isn’t the hypocrisy. It’s that the entire spending-fraud narrative is a distraction from where the government actually underperforms—not expense management, where it’s roughly on par with the private sector, but revenue collection, where evasion drains far more.
Private companies collect 97–99 cents on every dollar owed. The U.S. government collects 85–87 cents. That is the number that should define the fiscal debate. Everything below explains why it doesn’t.
On the expense side, the federal government loses an estimated 3–7% of its ~$7 trillion in annual outlays to genuine spending fraud—roughly $233–521 billion per year (per GAO estimates isolating willful misrepresentation from documentation errors where payment was substantively proper). That range is mediocre, not catastrophic—and much of it persists due to a principal-agent problem baked into cooperative federalism. States run programs such as Medicaid with federal funds under matching formulas, in which the federal share ranges from 50–90%, thereby diluting the incentive to enforce aggressively. It’s not their money, it’s yours. This is why high-profile cases, such as Minnesota’s Medicaid schemes, arise at the state level.
The private sector, by comparison, loses 1–5% of its ~$45–50 trillion in gross output to occupational fraud and theft, per the ACFE’s 2024 global survey. Government is worse on expenses, but not by the order of magnitude the headlines suggest.
On the revenue side, the picture is devastating. The IRS projects a net tax gap of $606 billion for tax year 2022—roughly 13% of the $4.7 trillion in true tax liability. Two leading government economists disagree about where the worst abuses of that gap live: Guyton (IRS) uses detection-controlled estimation to capture sophisticated evasion that random audits miss—offshore accounts, pass-throughs, complex partnerships—and finds evasion rates rising sharply with income, with the top 1% driving roughly 30% of the gap. Splinter (Joint Committee on Taxation) argues those multipliers overstate true fraud, conflating gray-area documentation issues with willful evasion—the same measurement critique we correctly apply to spending-side “improper payment” figures. Even under Splinter’s more generous methodology, 65–70% of the gap in dollar terms still concentrates at the top. The debate is about the slope of the evasion curve, not its center of mass.
The Fiscal Mirror: The Spend vs. The Collect
The current narrative focuses on the 3–7% expense-side fraud because it suggests the state is a bumbling thief. We must reduce its power! It ignores the 13% revenue-side gap because doing so would reveal that the state is a selective partner.”
In addition, per the Yale Budget Lab, here is a table estimating the vast majority of unpaid taxes are attributed to the top wealthiest Americans:
Table 1. Distribution of Tax Gap 2025
Taxpayers ranked by income corrected for estimated unreported income | Estimated Percentage of Unpaid Taxes | Estimated Unpaid Tax ($ billions) |
|---|---|---|
P0-10 | 0.2% | 1 |
P10-20 | 0.2% | 1 |
P20-30 | 1.0% | 7 |
P30-40 | 1.7% | 12 |
P40-50 | 2.4% | 18 |
P50-60 | 3.8% | 28 |
P60-70 | 5.5% | 40 |
P70-80 | 8.2% | 60 |
P80-90 | 12.9% | 94 |
P90-95 | 11.5% | 84 |
P95-99 | 24.7% | 181 |
P99-99.5 | 7.4% | 54 |
P99.5-100 | 20.6% | 151 |
Top 1% | 28.0% | 205 |
Per this chart, over 80% of the “Unpaid Taxes” come from the top 5% of income earners. The elites prosper while the remaining 95% of people in the United States shoulde the burden because they duly pay their taxes through withholding while receiving reduced government services due to uncollected taxes and higher interest payment on the debt.
This is no way to run a country. No - we don’t have to love - or even like - the IRS. But we all should recognize that the IRS is necessary. Without a functioning and properly funded Accounts Receivable Department, the United States will eventually cease to be a country that provides opportunity and freedom for all due to the continuing transfer of wealth upwards from ordinary hard-working people to the already obscenely rich investor class.
POLITICAL MESSAGING
Messaging around taxes is always a bit fraught, mainly because no one likes the IRS or paying taxes. But there may be a way to use this to our advantage.
“We all pay higher taxes because the IRS doesn’t have the resources to go after the Epstein Class and other wealthy tax cheats.” might be a good start.
Also, perhaps “The two parties are not the same. Democrats want the middle class to pay lower taxes by collecting everything the wealthy elites owe and making them pay their fair share. Republicans want to cut taxes - and enforcement - for the wealthy elites because that’s who funds their campaign war chests.”
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