IRS Cuts Would Cause $66 Billion of Revenue Loss

The continuing resolution recently introduced in the House of Representatives would extend the $20.2 billion in rescissions to the Internal Revenue Service (IRS) in this year’s appropriations bill alongside other Fiscal Year (FY) 2024 appropriations.

New Congressional Budget Office (CBO) estimates find that these cuts would weaken the agency’s tax enforcement capabilities, increase the tax gap, and reduce revenue collection by $65.8 billion over the next decade. On net, the IRS rescissions would increase deficits by more than $45 billion before accounting for interest or the extra discretionary spending facilitated by the rescission.

Importantly, the $66 billion revenue loss from rescinding $20 billion of IRS funding this coming year is much higher than CBO’s estimate of $38 billion last year – suggesting a return above 3-to-1 as opposed to below 2-to-1. This in part reflects changes in evidence and methodology but is also due to the cumulative nature of the cuts – the deeper IRS spending is cut, the more high-return enforcement activities will be prevented.