Not sure there are massive economies of scale in tax collection (and probably some diseconomies of scale too from scaling up from the Faroe Islands to a region/nation too big for a single official to know every accountant personally!). Auditing and providing specific advice on compliance is pretty hands on stuff, and as the population size grows, so does the size, variety and geographical dispersal of the entities being taxed, the range of possible avoidance measures, the complexity of legal actions etc. And inevitably, the complexity of the tax code...
Software systems generally benefit from economies of scale. So do financial institutions. Their tax system is simple enough to be automated to a larger extent than the IRS.
Not sure why this would be controversial at all. You're basically arguing that the more complex system of the IRS is 10x more efficient (population/budget) at 1000x the scale, but that the efficiency is unrelated to economies of scale. It just makes no sense to me. Would the costs go down if the Faroe islands adopted the American tax system?
I'm not actually arguing the IRS is 10x more efficient at all (the Faroes' costs are in krone), I'm arguing that its per head spend isn't that much larger considering it handles a lot more complexity and it's seldom regarded as an efficient organization. It's also fairly uncontroversial that labour intensive stuff like auditing businesses and running helpdesks doesn't benefit from particularly significant economies of scale (you spread some software maintenance costs but as you necessarily massively scale up your workforce you acquire inefficiencies from diffusion of knowledge and accountability across a larger, more unwieldy organization and increased management overhead).
> I'm not actually arguing the IRS is 10x more efficient at all (the Faroes' costs are in krone), I'm arguing that its per head spend isn't that much larger
According to the numbers mentioned above the per head spend of IRS is 3-5x smaller than the Faroe island equivalent. (Taking into account the currency difference.)
That despite the IRS handling a much more complex system.