In a significant fiscal decision, Congress has cut $20 billion from the IRS's budget as part of a recent stopgap spending measure.
The Daily Caller reported that the rescission of funds is a strategic move led by Republican lawmakers to curb IRS resources, which they claim focuses unduly on high-income individuals and corporations.
In 2022, under President Joe Biden, the IRS received an $80 billion boost aimed at increasing its enforcement capabilities, including hiring more agents. This move was primarily supported by Democrats, viewing it as essential for ensuring tax compliance among affluent earners and large businesses.
However, Republican opposition has been stark, criticizing the allocation as overly aggressive. They argued that the increase in funding would lead to unfair targeting of high-income taxpayers.
The tension between the parties set the stage for subsequent funding retractions that began as early as June 2023, with Congress pulling back more than $40 billion from the IRS over various legislative actions, including the recent December rescission.
The reduced funding is expected to significantly impact the IRS's operational capabilities. Initially, these funds were earmarked to boost tax enforcement on wealthier individuals and enterprises—an effort that would now be curtailed.
According to Treasury Secretary Janet Yellen, IRS audits funded by the supplemental budget previously targeted individuals making less than $400,000 to a greater extent than intended. This has sparked further debate about the distribution and fairness of IRS audit practices.
The IRS had also planned to implement new reporting requirements for transactions through third-party payment applications in November 2023, but these too were delayed due to budgetary pressures.
In January 2023, the House of Representatives initially passed legislation to rescind IRS funding, but it was blocked in the Senate by Democratic Majority Leader Chuck Schumer. Despite resistance, this did not stop further cuts included in the December stopgap bill.
Conservatives have applauded the rescission. John Kartch, Vice President of Communications at Americans for Tax Reform, praised the decision, stating, "It was very wise of Republicans to include that [$20 billion rescission in IRS funding] in the package."
Kartch emphasized the move as a preventive measure against future unnecessary spending by the incoming Trump administration.
Democrats, despite concerns, ultimately supported the bill. Kartch claimed, "Interestingly, the Democrats normally wouldn't want to agree to do that, but they couldn't fight that. By kicking it out, it means the Trump administration is never going to spend it."
Kartch also noted that trimming IRS funding is seen by Republicans as "political poison" against Democrats, suggesting a long-term strategy to critique Democratic fiscal policies. He advocates for further reductions in IRS budget to "reduce the size and cost of government."
On the other hand, House Speaker Kevin McCarthy highlighted that curtailing IRS overreach was a priority. "House Republicans just voted unanimously to repeal the Democrats’ army of 87,000 IRS agents. This was our very first act of the new Congress because government should work for you, not against you," said McCarthy.
President-elect Donald Trump, showing alignment with these efforts, nominated former Republican Missouri Rep. Billy Long as the new IRS commissioner shortly after the rescission was passed.
Deputy Treasury Secretary Wally Adeyamo has indicated that the reduced funding will result in fewer IRS audits over the next five years, casting doubt on the long-term viability of the IRS's enforcement strategies.