IRS Funding Cut: A Recipe for Deficit Growth and Slower Service

The Internal Revenue Service (IRS) plays a crucial role in the U.S. economy, ensuring that taxpayers fulfill their financial obligations and enforcing tax laws. However, recent proposals to cut IRS funding threaten to undermine its effectiveness and exacerbate the nation's fiscal challenges. This article explores the potential consequences of these funding cuts and the need for a more balanced approach to budgeting.

The IRS is already facing a significant funding reduction, with a $20 billion drop over a decade unless Congress takes action. This cut, coupled with potential additional reductions if Republicans target IRS funding, could have severe consequences. The agency would be forced to slow its modernization efforts and reduce enforcement, leading to longer call wait times and a decline in service quality.

Moreover, these cuts could increase the federal deficit. According to a Reuters report, cutting IRS funding would increase the deficit by $140 billion over a decade. This is primarily due to less enforcement against wealthy individuals and corporations, which has so far recovered $1.3 billion. As a result, tax evasion could rise, further exacerbating the deficit and potentially leading to higher borrowing costs or reduced government spending on other areas.

The accelerated cuts to IRS funding, as outlined in a bipartisan spending deal, could also impact the agency's ability to target wealthy individuals and corporations for complex audits. With less funds for technology, artificial intelligence, and machine learning, big-ticket enforcement efforts would be limited, while audits of middle-class taxpayers might increase. This shift could exacerbate income inequality and undermine public trust in the tax system.

To mitigate these risks, Congress should consider alternative funding sources to maintain robust enforcement and service quality. Closing tax loopholes and evasion, increasing enforcement and improving efficiency, and expanding the tax base could generate additional revenue without significantly impacting economic growth. These alternatives could help reduce the impact of IRS funding cuts on the U.S. economy and deficit.

In conclusion, the proposed cuts to IRS funding threaten to increase the federal deficit, slow service, and undermine public trust in the tax system. To maintain a strong and fair tax system, Congress should prioritize IRS funding and explore alternative revenue sources. A balanced approach to budgeting is essential for ensuring the long-term fiscal health of the nation and the integrity of the tax system.