The Internal Revenue Service headquarters building is seen in Washington, DC, on January 10, 2023.
Washington CNN —
Congressional Republicans and some GOP presidential candidates are continuing to target the Internal Revenue Service – a longtime political punching bag – after Democrats bolstered the agency with billions in new funding meant to help modernize the nation’s tax collector.
Most recently, Republican lawmakers secured a concession from Democrats to speed up a $20 billion cut, previously agreed to last June to avoid a US default.
Rather than cut $10 billion this year and another $10 billion next year from the IRS, all $20 billion would be rescinded in 2024 under an agreement reached Sunday on 2024 top-line budget numbers. The deal is a key first step to avoid a looming, partial government shutdown, but plenty of work remains before lawmakers reach a broader deal on a final 2024 spending bill.
Meanwhile, Republican presidential candidates Ron DeSantis and Vivek Ramaswamy have suggested they would gut the IRS, along with some other federal agencies.
Last week during a CNN town hall, DeSantis went as far as to say that he would eliminate the IRS and replace the nation’s tax code with one flat tax, which would require all taxpayers to pay the same federal tax rate.
Republicans chip away at Democrats’ $80 billion boost
Democrats have taken a different approach than Republicans by making it a priority to increase funding for the IRS. TheInflation Reduction Act, which passed in 2022 without any Republican votes, approved about $80 billion for the IRS over a 10-year period.
Democrats say the money is meant to help the IRS ramp up its enforcement efforts on high-income taxpayers as well as improve its archaic taxpayer services system. The Biden administration has repeatedly said that taxpayers earning less than $400,000 a year won’t see an increase in taxes as the IRS expands its enforcement efforts.
But Republicans have claimed that the IRS will use the money to hound middle-class taxpayers and small business owners and have made several efforts to claw back the money.
Last year, the Republican-controlled House’s first vote was to rescind nearly all of the $80 billion. The House GOP later approved a bill to abolish the IRS altogether and replace the entire federal tax code with a national sales tax. DeSantis co-sponsored a similar bill in 2015 when he served in the US House.
Those bills were not taken up in the Senate – and neither was a November House bill that would have repurposed $14.3 billion in IRS funds to pay for aid to Israel instead.
But in a deal to address the debt ceiling and avoid a US default last June, Democrats agreed to allow for $20 billion of the Inflation Reduction Act funds to be rescinded. Now Democrats have conceded an acceleration of the $20 billion cut in an effort to get a full-year federal spending law passed in time to avoid a partial government shutdown on January 19.
What the IRS is doing with the new funds
The IRS plans to both ramp up enforcement on tax cheats as well as improve taxpayer services so that it’s easier for people to file their federal tax returns. Nearly 60% of the new funds are expected to be used for strengthening enforcement.
Already, the funds helped theIRS collect $160 million in back taxes last year. The agency will continue to expand its enforcement work focused on high-income individuals as well as cracking down on large corporations that have not been paying the taxes they owe.
One of the first things the IRS did with the boost in funding was to hire more people to answer the phones when taxpayers call with questions.
During the 2023 filing season, the IRS was able to answer3 million more callsand cut phone wait times to three minutes from 28 minutes compared with the year before after hiring 5,000 new customer service representatives.
The IRS has also put a plan in motion todigitize all paper-filed tax returns by 2025. The move is expected to cut processing times in half and speed up refunds by four weeks.
Meanwhile, the agency is developing its own direct, free filing system that will be available in a limited pilot program to some taxpayers later this year.
The IRS is also expected to make improvements this year to its existing online tool known as “Where’s My Refund?”so that it will be able to give taxpayers more detailed information about the status of their refund after they’ve filed their federal tax return.
What cuts mean for the IRS
Despite the clawback of $20 billion of the $80 billion from the Inflation Reduction Act, the Biden administration has said that the IRS can still carry out its plan to modernize the agency.
“TheIRS has the resources it needs in the near-term to improve customer service and pursue wealthy and corporate tax evaders,” Ashley Schapitl, a Treasury spokesperson, said in a statement sent to CNN on Monday.
But she warned that further cuts would harm the agency’s ability to ramp up its enforcement efforts.
“As Congress considers annual appropriations, the IRS needs resources to support new initiatives to recover the estimated $160 billion in annual tax evasion driven largely by the wealthy,” she said.
If the most recent spending deal between Senate Majority Leader Chuck Schumer and House Speaker Mike Johnson becomes law, the IRS will lose $20 billion in 2024 rather than over the next two years.
When asked about that possibility last week, White House budget director Shalanda Young said that the acceleration would not impact the IRS’ plans.
“From our purview, $20 billion over two or one year is $20 billion,” Young said at a breakfast hosted by the Christian Science Monitor.
“We have already worked with IRS to make sure that that does not impact their current efforts, and we feel confident that they can continue to go after high-income tax cheats with a $20 billion reduction,” she added.
The IRS’ annual budget has been basically flat for the past two decades after adjusting for inflation, while the US population has grown. The 2021 budget was $13.7 billion, roughly the same as it was back in 2002 in inflation-adjusted terms. As a result, there has been a significant decline in staffing and audit rates.
Former President Donald Trump, the current front-runner in the 2024 GOP presidential race, initially proposed cutting funds from the IRS during his first year in office, but he proposed modest increases in following years.
How cutting IRS funding could increase the US deficit
Some Republicans argue that taking back some of the IRS funding will save the government money. But the independent Congressional Budget Office and other budget experts have said that the reverse is true.
Cutting IRS funding would hamper the agency’s enforcement efforts and could lead to fewer audits of tax cheats. As a result, the IRS would not be able to collect as much tax revenue.
The CBO found that the Republican bill from November to rescind $14.3 billion of IRS funding would have actually increased the deficit by almost $12.5 billion over the next 10 years.
IRS cuts “weaken the government’s ability to collect taxes and ultimately worsen the budget deficit,” Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said in a statement Monday.
