Trump-era IRS Cuts Could Cost U.S. $1 Trillion in Lost Tax Revenue

Former U.S. Treasury Secretary Lawrence Summers has issued a stark warning regarding the potential consequences of the Trump administration's decision to reduce the size of the Internal Revenue Service (IRS). According to Summers, this move could lead to a significant loss in tax revenue over the next decade, exacerbating the nation's fiscal challenges.

Summers, who served as the U.S. Treasury Secretary under President Bill Clinton, expressed his concerns in a recent statement. He highlighted that the reduction in the IRS's workforce and other related actions by the Trump administration could result in fewer people paying taxes or paying less, leading to a potential loss of up to $1 trillion in federal tax revenue over the next ten years.

Summers emphasized that the IRS's ability to enforce tax compliance is being undermined by the administration's actions. He noted that the IRS relies on voluntary compliance, and the current measures are threatening this foundation. "We are threatening the very foundation of our tax system, which is built on voluntary compliance," Summers stated. He further warned that the administration's decision to cut IRS staff is misguided and could lead to severe financial repercussions.

Summers' concerns are backed by recent reports indicating that approximately 20,000 IRS employees have chosen to accept voluntary early retirement offers, representing about one-fifth of the agency's total workforce. Additionally, around 7,300 probationary employees have been placed on administrative leave. The leadership of the IRS has also been in turmoil, with the agency experiencing its fifth acting commissioner since President Trump took office in January.

Summers warned that the current situation could lead to a decrease in the willingness of households and businesses to comply with tax laws. He suggested that the administration's actions could encourage more people to avoid reporting their income or to engage in fraudulent activities to evade taxes. "There is a risk that more people will turn to cash payments to avoid reporting, or engage in suspicious transactions to evade taxes," Summers said.

Summers also noted that the reduction in the IRS's workforce could lead to an increase in the underground economy, where transactions are conducted in cash to avoid detection. He cautioned that while the full impact of these changes may not be immediately apparent, the risks are significant. "We are not seeing the full consequences of these actions yet, but the risks are enormous," he stated.

The Biden administration had previously proposed a significant increase in the IRS's budget to support technological upgrades and expand its workforce. However, Republican lawmakers later withdrew some of the proposed funding. The current Treasury Secretary, Janet Yellen, has expressed support for modernizing the IRS and ensuring that it enforces tax laws fairly and effectively.

Summers concluded by warning that the potential loss of tax revenue due to decreased compliance could worsen the nation's fiscal problems or force the government to implement other forms of destructive taxation in the future. "The loss of tax revenue due to decreased compliance will make our fiscal problems worse—or force us to adopt other forms of destructive taxation in the future," he said.