Conservatives Express Concern Over Trump’s IRS Cut Plans
TL/DR –
The Trump administration is reportedly considering plans to cut the Internal Revenue Service’s (IRS) workforce by half. This move could potentially cripple the IRS, leaving it struggling to perform basic services and meet compliance requirements. Already, the IRS has laid off about 7,000 probationary employees as part of Trump’s broader initiative to cut down federal bureaucracy, and there are fears this could adversely impact service delivery during the year’s filing season.
Trump’s IRS Workforce Cut Could Lead to More Tax Evasion, Experts Say
Endless phone hold times, slower refunds, and larger budget deficits are among the potential consequences if the Trump administration proceeds with plans to cut the Internal Revenue Service’s (IRS) workforce by half, say tax experts. This could result in the agency struggling to process around 270 million tax returns from individuals and businesses annually, warn both Democratic and Republican former officials.
Charles Rettig, who served as Trump’s IRS commissioner during his first term, warned that such a move puts every IRS function at risk. Early signs of this were seen when the IRS laid off about 7,000 employees as part of Trump’s efforts to cut federal bureaucracy, sparking concerns about the impact on the filing season. As reported by the New York Times and the Associated Press, the IRS is planning a further 50% cut to its roughly 90,000-strong workforce.
NYU tax law professor David Kamin emphasized the difficulty of operating the agency with such limited resources. “We have not had an IRS like that in modern times, with our current economy and tax code,” he said. “It won’t be able to function in any way like we’ve seen before.”
During the Biden administration, IRS staffing was boosted to 1970s levels and audit rates on individual returns were increased by more than half. This was facilitated by $80 billion from the Inflation Reduction Act aimed at modernizing the agency’s customer service, processing systems, and increasing enforcement. The goal was to recoup more of the $600 billion that Americans fail to pay in taxes each year.
But the proposed downsizing could hinder that progress, warns Danny Werfel, who served as IRS Commissioner under Biden. He cautions that service performance could deteriorate to levels seen during the COVID-19 pandemic, with towering stacks of delayed paper returns and prolonged wait times for owed refunds.
Most experts believe that reducing IRS agents would cost more than save due to decreased ability to catch tax dodgers. IRS estimates indicate that each additional dollar spent on audits brings in $6 of extra revenue, with Economists finding audits of higher-income taxpayers generate a return closer to $12-to-$1.
“Conservatively, we’re looking at hundreds of billions of dollars in increased evasion if the IRS operates with post-World War II staff levels,” said Natasha Sarin, a former tax policy adviser at the Biden Treasury Department.
Furthermore, a decrease in the likelihood of tax evasion catching could discourage voluntary tax payments, leading to a downward spiral in compliance. Americans are currently more compliant with their tax obligations than Europeans, but that could change with a severely downsized IRS.
Before Trump’s layoffs, the IRS was expected to suffer reductions under Republican lawmakers. They fiercely opposed Biden’s funding of the IRS and managed to reclaim $20 billion during budget negotiations. Due to a drafting error in last year’s resolution, the agency could lose another $20 billion this year.
However, some conservative experts argue that significant cuts should be made only after tax code simplification, which would reduce the need for a large customer service operation and complicated enforcement efforts. “If Republicans simplify the tax code dramatically…then you could cut the IRS in half,” said Christopher Edwards, a fiscal policy expert at the Cato Institute. But he adds that current proposals like eliminating taxes on tips would necessitate more administration and auditing.
Mark Everson, former IRS Commissioner under George W. Bush, supports streamlining the IRS but believes it should complete its IT and customer support systems modernization before deciding on staffing cuts. “They need to retain the right people…This very blunt instrument they’re wielding doesn’t allow them to do that,” he said.
Significant IRS cuts could also alter enforcement priorities, likely leading to less scrutiny of wealthy households and businesses, which requires substantial manpower, and more focus on wage-earners whose income is primarily reported on W2s. During Trump’s first term, the IRS mainly audited taxpayers who applied for the earned income tax credit, which boosts incomes for low-income and working-class families.
“Where we’ll see enforcement continue are places where it’s easiest to connect the dots,” said NYU’s Kamin.
Click here to read the latest financial and business news from Yahoo Finance.
—
Read More US Economic News