Why the GOP plan to cut IRS funds to pay for Israel aid would increase the deficit

The Republican-controlled House is once again targeting the Internal Revenue Service, this time voting to cut some of the agency’s funding to pay for a $14.3 billion emergency aid package for Israel.

The bill, put forth by the House’s newly minted speaker, Mike Johnson, passed the House Thursday, but is unlikely to even get brought up for a vote in the Democrat-controlled Senate. Many Democrats are committed to supporting an overhaul of the IRS, funded with an $80 billion federal investment they approved last year through the Inflation Reduction Act.

But Johnson’s bill highlights how cutting funding from the IRS, which has been repeatedly proposed by Republicans, doesn’t actually save money.

In fact, the nonpartisan Congressional Budget Office said Wednesday that cutting $14.3 billion from the IRS would increase the deficit by almost $12.5 billion over the next 10 years.

So instead of offsetting the $14.3 billion that House Republicans wants to send to Israel, and making the bill budget neutral, the combination of sending aid and cutting IRS funding would add a total of about $26.8 billion to the deficit over a decade, according to the CBO.

IRS cuts would reduce tax revenue

Cutting IRS funding would hamper its enforcement efforts and could lead to fewer audits of tax cheats. As a result, the CBO and other budget experts agree that the agency would not be able to collect as much tax revenue.

The CBO estimates that the IRS would take in nearly $26.8 billion less in revenue over a decade if Johnson’s proposal takes effect.

Nearly 60% of the new IRS funds approved by the Inflation Reduction Act are expected to be used for strengthening enforcement efforts. The IRS intends to crack down on high-income earners and large corporations that have not been paying what they owe in federal taxes.

By ramping up enforcement on millionaires this year, the IRS has already collected $160 million in back taxes.

“House Republicans’ legislation would increase the deficit by helping wealthy individuals and corporations cheat on their taxes, increasing the tax burden on honest, hardworking families who pay their taxes with every paycheck,” said Treasury spokesperson Ashley Schapitl this week.

House Republicans make IRS funding cuts a priority

No Republicans voted for the Inflation Reduction Act, which included $80 billion for the IRS, when it passed Congress last year.

Since then, the House GOP has made several efforts to claw back some of the money, and some representatives have even called for abolishing the IRS altogether.

Republicans were successful in rescinding $20 billion from the IRS as part of a deal reached earlier this year to address the debt ceiling.

Some Republican lawmakers have repeatedly made the exaggerated claim that the IRS will be using the new funds to hire 87,000 auditors who will go after average taxpayers and small business owners. The Biden administration has said that taxpayers earning less than $400,000 a year won’t face an increase in taxes due to the new funding.

The federal investment in the IRS is also being used to help modernize the agency and improve customer service after suffering from years of budget declines.

The new funds have already helped improve taxpayer services at the IRS. In the 2023 filing season, it answered 3 million more calls and cut phone wait times to three minutes from 28 minutes compared with the year before.

The IRS is currently working on building its own free tax filing program, known as Direct File, that will launch as a limited pilot program next year.

The agency has also put a plan in motion to digitize all paper-filed tax returns by 2025. The move is expected to cut processing times in half and speed up refunds by four weeks.

CNN’s Morgan Rimmer contributed to this report.

This story has been updated with additional information.

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