Instant Insight

30-Second Take

• Congress may cut another $20 billion from the IRS budget, impacting tax enforcement and services.
• This cut could lead to a hiring freeze, fewer audits, and slower tax processing.
• The Treasury warns this could increase the national deficit by $140 billion.

Quick Brief

2-Minute Digest

Essential Context

The IRS is facing a potential loss of $20 billion in funding, which is part of the $80 billion allocated over 10 years by the Inflation Reduction Act of 2022. This cut would severely impact the IRS’s ability to enforce tax laws and provide taxpayer services.

Core Players

• Internal Revenue Service (IRS) – U.S. tax authority
• U.S. Treasury Department – Oversees IRS funding
• Congress – Responsible for approving IRS funding
• Wally Adeyemo – Treasury Deputy Secretary

Key Numbers

• $80 billion – Total IRS funding over 10 years from the Inflation Reduction Act
• $20 billion – Potential funding cut at risk
• $140 billion – Potential increase in national deficit due to reduced enforcement
• 6,000 – Fewer audits of wealthy individuals expected
• 2,000 – Fewer audits of large corporations expected

Full Depth

Complete Coverage

The Catalyst

The issue arose due to duplicative legislative language in a stopgap funding bill passed in September, which mistakenly included a $20 billion cut already applied in a previous agreement. This error could rescind another $20 billion if not corrected by Congress during the lame-duck session.

Inside Forces

The IRS was originally allocated $80 billion over 10 years for enforcement, taxpayer services, and technology upgrades through the Inflation Reduction Act. However, previous budget agreements reduced this funding by $21.4 billion, and now the agency faces an additional cut of $20 billion.

“The IRS is going to potentially have to make dramatic decisions about stopping hiring and starting to budget for a world in which they don’t have $20 billion,” warned Treasury Deputy Secretary Wally Adeyemo.

Power Dynamics

Republican lawmakers have been advocating for cuts to the IRS budget, including the elimination of the Direct File free tax preparation program. This opposition adds to the pressure on the IRS’s funding.

Elon Musk, recently appointed to head a new Department of Government Efficiency, has polled his followers on whether the IRS budget should be increased, decreased, or deleted, with over 60% favoring deletion.

Outside Impact

The funding cut would have broad implications. It would lead to a hiring freeze, reducing the IRS’s workforce and capabilities. This could result in slower tax processing, refund delays, and fewer audits, allowing more high-income taxpayers to avoid audits.

The Treasury estimates that this cut could increase the national deficit by $140 billion, as reduced enforcement would mean less revenue collected from unpaid taxes.

Future Forces

If the funding is not restored, the IRS will face significant challenges in the upcoming fiscal year. The agency would run out of enforcement money at the current pace by sometime in fiscal year 2025.

Key areas that will be impacted include:

• Enforcement: Reduced audits of wealthy individuals and large corporations.
• Operations Support: Limited resources for taxpayer services.
• Business Systems Modernization: Delays in technology upgrades.
• Taxpayer Services: Potential for slower response times and less assistance.

Data Points

• 2022: Inflation Reduction Act allocates $80 billion to IRS over 10 years.
• 2023: Funding reduced by $21.4 billion as part of a debt ceiling deal.
• 2024: Additional $20 billion cut at risk due to legislative error.
• Dec. 20, 2024: Deadline for Congress to correct the funding issue.