Republicans strip IRS of another $20 billion in government shutdown fight

Congress revoked an additional $20 billion from the Internal Revenue Service last week when lawmakers averted a government shutdown, a cut that may undo many of President Joe Biden’s efforts to improve customer service at the tax agency and train fresh scrutiny on wealthy tax cheats.

Biden and congressional Democrats gave the IRS $80 billion in the 2022 Inflation Reduction Act, but Congress rescinded $20 billion as part of a 2023 budget deal. Shortly afterward, Republicans vowed they’d be back for more IRS cuts.

And because of the way lawmakers extended government funding into March, an additional $20 billion in cuts came automatically.

When Congress approved a stopgap funding bill, called a continuing resolution, all the existing policy from the previous fiscal year was carried forward unless new text was specifically added to the bill to change it. There was no language in the bill to undo last year’s cut, so it repeated in the new law.

Critics of the IRS were pleased.

“We obviously think the increased money from the [Inflation Reduction Act] for IRS agents was a declared shakedown on taxpayers to pay for Democrats’ spending,” said Michael Palicz, director of tax policy for the anti-tax group Americans for Tax Reform. “Republicans have taken a huge chunk out of this before, and we have a chance to do that again.”

But Biden administration officials said the additional cuts would add $140 billion to the national debt over the next decade by hamstringing the agency’s ability to audit wealthy individuals and large corporations.

The agency will conduct 400 fewer audits of major businesses each year, Biden administration officials said, and 1,200 fewer audits of high-income individuals.

More cuts would also force the IRS to dramatically reduce customer service for taxpayers, Deputy Treasury Secretary Wally Adeyemo said last month. By 2026, the IRS would have enough resources to answer only two of every 10 phone calls to customer helplines, and wait times would increase to 28 minutes on average.

“Not only would you be in a position where we don’t have the money to go after the people who are trying to deliberately cheat and not pay their taxes, but we also wouldn’t have the resources to help the people who are trying to pay their taxes and make it more efficient,” Adeyemo said.

The new money from the Inflation Reduction Act funding vastly improved the IRS’s operations, according to the agency’s inspector general. Before the additional resources kicked in, the agency had a mountain of 24 million backlogged paper tax returns; within a year of receiving the funding boost, that was almost eradicated, the agency reported.

In the 2022 filing season, months before Congress approved the law, only 10 percent of taxpayer phone calls were ever connected to a live representative - if callers stayed on the line through sometimes hours-long waits. The IRS now answers more than 85 percent of taxpayer calls with a wait of less than three minutes, Adeyemo said.

“To the extent that you cut the funding, you make it harder for taxpayer service to work. People can’t get through on the phones, they can’t get answers,” John Koskinen, the IRS commissioner from 2013 to 2017, said this month. “I’m famous for saying that underfunding the agency is just a tax cut for tax cheats.”

But the Biden administration had already agreed in earlier budget fights to sacrifice some of the IRS funding in exchange for preserving other priorities. So Republicans, who had opposed the extra money over worries it could lead to increased audits of middle-class taxpayers, were eager to push for more cuts.

“It is a landmark thing that you are getting Democrats to open up Biden’s signature legislation. And the reason they keep going back to the well on it is because they know it’s a political liability for them. Siccing the IRS on people is not politically popular,” Palicz said.

Congressional Democrats had hoped to preserve the IRS’s resources during the many rounds of negotiations around the government shutdown, Rep. Rosa DeLauro (Connecticut), the top Democrat on the House Appropriations Committee, told The Post. But stripping the funding proved to be one of Republicans’ top issues, she said.

“I was one of the folks who in the last go-round … who said, ‘They’re coming back for more [IRS cuts],’” DeLauro said. “I fought very hard on this issue. You have to get the votes to be able to move forward. … If you’re in a negotiation, you have to negotiate on these things.”