IRS Workforce Cuts: A Recipe for Taxpayer Disaster?

The Internal Revenue Service (IRS) is reportedly drafting plans to cut as much as half of its 90,000-person workforce, according to sources cited by the Associated Press (AP). This drastic reduction, if implemented, could have severe consequences for taxpayers and the U.S. economy. Let's explore the potential impacts and the reasons behind this alarming proposal.



The IRS: A Critical Component of the U.S. Economy

The IRS is responsible for collecting taxes, enforcing tax laws, and providing taxpayer assistance. It plays a crucial role in funding the U.S. government and maintaining the nation's fiscal health. A well-functioning IRS ensures that taxpayers comply with their obligations, promotes economic growth, and supports essential government services.

The Impact of Workforce Cuts

1. Delays in Tax Return Processing: With fewer employees, the IRS may struggle to process tax returns in a timely manner. This could lead to delays in refunds for taxpayers and increased wait times for those seeking assistance. For example, in 2024, the IRS had a backlog of over 470,000 Identity Theft Victim Assistance (IDTVA) cases, and the average time to reach a resolution was nearly two years. A reduced workforce could exacerbate these delays.
2. Increased Tax Evasion: A smaller IRS workforce may result in less enforcement of tax laws, leading to increased tax evasion. This could significantly impact revenue generation. For instance, a study by the Treasury Inspector General for Tax Administration found that the IRS could collect an additional $300 billion in taxes over 10 years by improving its enforcement efforts.
3. Reduced Customer Service: With fewer employees, the IRS may struggle to provide adequate customer service. This could lead to frustrated taxpayers and increased calls to Congress for help, as seen in the past. For example, in 2024, the IRS had a 66% delay rate for taxpayer mail, and it took 20 days instead of the usual 10 days to process paper returns.
4. Impact on Special Programs: A reduced workforce could also impact the IRS's ability to administer special programs like the Employee Retention Credit (ERC). As of 2024, the IRS still faced a backlog of about 1.2 million ERC claims, with many pending for more than a year. A smaller workforce could further delay the processing of these claims.
5. Potential Revenue Loss: The combination of these factors could lead to a significant loss in revenue for the government. For instance, a study by the Urban-Brookings Tax Policy Center estimated that a 10% reduction in the IRS budget could result in a $1.6 billion loss in revenue over 10 years. A 50% reduction in the workforce could have an even more significant impact.

The Reasons Behind the Proposed Cuts

The proposed cuts to the IRS workforce are part of President Donald Trump's campaign to shrink the federal workforce. The Trump administration has argued that reducing the size of the federal government will lead to more efficient and effective services. However, critics have raised concerns about the potential consequences of these cuts on taxpayer services and the U.S. economy.



Conclusion

The proposed cuts to the IRS workforce could have severe consequences for taxpayers and the U.S. economy. A reduced workforce may lead to delays in tax return processing, increased tax evasion, reduced customer service, and potential revenue loss. As the IRS plays a critical role in maintaining the nation's fiscal health, it is essential to carefully consider the potential impacts of these cuts before moving forward. Taxpayers and policymakers alike should be aware of the risks and advocate for a balanced approach that prioritizes the needs of both the government and its citizens.