Advocates warn of the cost of cutting IRS funding
The Coalition on Human Needs and more than 50 groups sent a letter to House and Senate leaders warning of proposed cuts to the IRS – cuts that would harm the agency’s ability to provide customer service and pursue wealthy tax cheats while actually increasing the nation’s deficit.
The letter, signed by the Coalition on Human Needs, protests two proposed cuts put forth by House Republicans. One cut would eliminate almost all additional funding for the IRS that was included in last year’s Inflation Reduction Act. Another cut would reduce the IRS’ annual baseline appropriation.
The letter warns that the cuts would exacerbate the $600 billion annual tax gap – the difference between estimated tax liability for a given period and the amount of tax that is paid on time. According to the Center on Budget and Policy Priorities, the gross tax gap covers three areas – non-filing of taxes, underreporting of taxes, and underpayment of taxes.
The letter notes that a “decade of deep budget cuts left the IRS unable to provide the reliable and accessible customer service taxpayers deserve and to ensure wealthy taxpayers and corporations pay the taxes they legally owe.”
It states that as recently as 2021, 9 out of 10 taxpayer phone calls to the IRS went unanswered, leaving individuals and small businesses in the dark. But after funds from the Inflation Reduction Act kicked in, customer service improved rapidly.
“The IRA funding has already shown promising early results: the IRS is now answering taxpayer calls as it should, clearing backlogs, and transmitting timelier tax refunds,” the letter states. “According to the National Taxpayer Advocate, ‘the difference between the 2022 filing season and the 2023 filing season was like night and day.’”
The letter also says that as a result of years of budget cuts, “audits of high-income taxpayers, which require substantial resources because of these filers’ complex financial affairs, plummeted: the audit rate for millionaires dropped by 71 percent between 2010 and 2019.”
And that had both a regressive and discriminatory impact.
“The IRS focused instead on the simpler returns of low-income taxpayers, who are disproportionately households of color,” the letter states. “After the budget cuts, EITC filers became about as likely to be audited as someone in the top 1 percent.”
As the letter notes, the Inflation Reduction Act provided nearly $80 billion in long-term funding to “begin reversing these inequitable outcomes and to rebuild the IRS, which the Congressional Budget Office estimated would increase federal revenues by $180 billion as a result of improved tax compliance.”
Of the $80 billion in ten-year funding that the IRS received from the Inflation Reduction Act, House Republicans have proposed rescinding $67 billion. According to the letter, this would result in “deeply undercutting the rebuilding effort, compromising the progress the IRS has made in improving taxpayer service, and raising the deficit. These bills compound the problem by cutting the regular IRS appropriation by $1.1 billion (or 9 percent below a freeze).”
The letter concludes, “As the budget process continues in the coming weeks, Congress should, at a minimum, commit to protecting the IRS funding levels agreed to in the Senate for both the IRA mandatory funding and the IRS’s base budget — based on the bipartisan debt ceiling agreement — to ensure the IRS can fulfill its mission and serve the American people.”
You can read the letter and see the list of signers here.