President Joe Biden’s administration wants Congress to maintain additional funding for the IRS to help it track down tax scofflaws and provide faster customer service, warning that letting the funding expire would add to the budget deficit.
The Treasury Department’s jockeying comes as the rubber begins to hit the road on a potential year-end government spending deal — either a temporary one lasting a few months or a longer one through 2025. When members of Congress left Washington in September to hit the campaign trail, they agreed to extend the government’s funding past Sept. 30 to Dec. 20.
But that deal, in a bill called a continuing resolution, mostly just kept funding for government agencies and programs at existing levels, with the idea that Congress and the White House could negotiate a broader agreement in December.
That deadline is now closing in, with Congress set to return from the Thanksgiving holiday next week. The body will then start a three-week sprint to keep the government open and, in the case of the Democratic-held Senate, to confirm as many of Biden’s federal judge picks as it can before the new Congress meets in January.
“In 2025, we’re going to hopefully have a robust debate about where the tax rates should be, but there should be no debate about whether people should pay the taxes that they owe,” Deputy Treasury Secretary Wally Adeyemo told reporters Tuesday.
Individual portions of the 2017 tax cuts enacted by a Republican Congress and Donald Trump in his first presidential term are set to expire in 2025. The GOP and the next Trump White House will be looking at extending them, and whether to do so without adding to the government’s $36 trillion-plus national debt.
The stopgap funding bill approved in September did not address the extra IRS funding, which was approved in the 2022 Inflation Reduction Act. This means that unless the funding is approved as an exception to current levels — or an “anomaly” — in an upcoming funding bill, it will be unavailable to the IRS, Adeyemo said.
“At some point, if they don’t get an anomaly, the [IRS] commissioner is going to have to make decisions about what he slows or stops in order to make sure they’re in a position where they don’t run out of money for enforcement,” the deputy secretary said, noting that this could add $140 billion to the federal deficit over a decade from lower revenue.
House Republicans in particular have been critical of the Inflation Reduction Act, calling its clean energy tax subsidies wasteful and falsely saying the IRS would use its additional funding to hire 87,000 new auditors. Republicans may claim that reversing some of the IRA’s provisions in 2025 would offset the cost of extending the 2017 tax cuts.
According to Treasury, a drop in enforcement would mean that audits of taxpayers making under $400,000 a year would rise as a proportion of all IRS audits. With the funding, the IRS could start at least 4,000 audits of high-income earners a year, while without it that number would fall by about 1,200 each year from 2025 to 2029.
Along those same lines, Treasury said the IRS would not be able to conduct about 400 audits of large corporations annually without the IRA funding boost. It also said that average wait times for taxpayers calling the IRS could rise from three minutes in 2024 to 28 minutes in 2026.
Maya MacGuineas, the president of the bipartisan Committee for a Responsible Federal Budget, told reporters that boosting IRS enforcement was a “fiscal no-brainer.”
“I’m the biggest ‘there is no such thing as a free lunch’ person when it comes to fiscal policy,” she said. “But the IRS funding does have a high return. It does pay for itself.”