Funneling subsidies through the tax code gives the tax-savvy a disproportionate advantage. Many tax provisions structured as deductions offer the most generous benefits to the highest earners as a matter of arithmetic. A married couple making $75,000 is in the bracket with a 12 percent tax rate on their last dollar of income, meaning a given deduction is only about a third as valuable as for a couple making $425,000 that faces a 35 percent rate.
What this means is that in effect, the I.R.S.’s tax collectors spend remarkably little time collecting taxes. Rather, they administer social welfare programs, regulate retirement savings and, well, adjudicate discounts on those 23andMe kits.
“The problem with the creep of social benefits into the Internal Revenue Code is that no one ever said, ‘Oh my God, we’ve got a new mission, we aren’t just a revenue collector, we’re a benefits administrator, so we need to hire different people and set different goals,’” said Nina Olson. She was the chief taxpayer advocate within the I.R.S. for nearly two decades before becoming executive director at the Center for Taxpayer Rights last year.
“You have a tax-enforcement-minded agency administering a benefits program, and that is the source of real problems,” she added.
Politics is at the root of this reality. Conservatives and centrist Democrats who might blanch at the idea of explicit government welfare — a federal agency cutting checks to families with low incomes, for example, or to help out with health expenses — are often more open to a tax subsidy that achieves the same thing.
And whereas new spending may have to survive a politically fraught appropriations process every year, a new provision in the tax code will typically remain law until a future Congress decides to overhaul the tax system, a more rare occurrence.
“Tax expenditures aren’t viewed the same way as an addition to the budget,” said Mark W. Everson, a former I.R.S. commissioner who is now vice chairman of Alliantgroup, a tax consulting firm. “It’s not quite as pejorative. That’s just the political reality, that people think a program can be swallowed more readily if it is run through the tax code as opposed to a payment from H.H.S. or some other agency,” he said, referring to the Department of Health and Human Services.