IRS funding repeal would be big gift to tax cheats: report

House Republicans on Monday began one of their first orders of business as the majority party with an attempted jab at everyone’s favorite punching bag: the Internal Revenue Service (IRS), which is due to get about $80 billion in funding over the next 10 years thanks to the Inflation Reduction Act.

Republicans want desperately to claw most of that back, and some have repeated misleading claims that the money is being used to hire an “army” of 87,000 IRS agents who will unleash a fusillade of tax audits on low- and middle-income Americans. In reality, the money would allow the agency to hire full-time staffers across various departments over a decade, in many cases replacing staff who would have left through attrition.

The IRS will get bigger as a result of this funding, but it needs to, as the agency has been seriously under-funded and understaffed for years—a problem evident to anyone who has ever tried to get an actual human IRS representative on the phone.

Nevertheless, a good deal of Republicans campaigned on the issue of stopping President Biden’s so-called IRS army, and so on Monday they passed a party-line proposal to repeal about $71 billion of the new funding.

The proposal, as many have pointed out, has little chance of passing the Senate—and the White House has said Biden would veto it anyway—so yesterday’s vote is not going to do a whole lot beyond demonstrate the priorities of the new GOP-controlled house.

That’s probably just as well if you care about things like the budget deficit, the tax gap, and tax evasion, all of which would have been made worse by the repeal of this funding, according to projections from the Congressional Budget Office (CBO) and the Committee for a Responsible Budget (CFRB).

The latter group released a report citing estimates that 13% of taxes go unpaid, and that the main culprits are “underreported income” and “overreported deductions and credits.” The new funding won’t fix the problem entirely, but it would help “modestly” improve compliance, the CBO estimates, and could generate $180 billion through 2032.

The CFRB’s report goes on to say that repealing the funding would have encouraged tax cheating. It also points out that every president since Ronald Regan has supported closing the tax gap, or the difference between how much the IRS is owed versus how much it collects. The IRS recently estimated that the gap was about $496 billion during the tax years 2014-2016, and that it’s likely to be even bigger in more recent years. Again, not that this funding will be a panacea for all things that ail the IRS, but consensus indicates that some help is better than none at all.

“Although additional reforms and accountability measures to accompany new IRS funding could be constructive, there is little case for rescinding the money outright,” CFRB says in a blog post. “Increasing funding for the IRS is one of the few ways to raise more revenue without raising taxes.”