The Cost of Cutting Spending on the IRS
Why cost-cutting at the IRS may cost over 20 billion dollars a year in lost revenue.
LETTERS TO THE EDITOR
Ron Day
3/20/20251 min read
IRS, the Agency Nobody Loves
While nobody (except for accountants, maybe?) loves the IRS The dramatic personnel reductions and administrative leaves imposed as part of the broader cost‐cutting initiative, will severely impair this agencies’ ability to function effectivly. Here are ways the Agency is being effected by recent changes:
Inflation Reduction Act (IRA) Funding Rescission: The IRS initially received an $80 billion allocation under the 2022 IRA to enhance tax enforcement and modernize operations. However, recent legislative actions have rescinded $20 billion of this funding, effectively reducing the agency's resources for these initiatives.
Immediate Layoffs: In February 2025, the IRS terminated approximately 7,000 probationary employees—those with less than one to two years of service. These layoffs occurred during the peak tax-filing season, raising concerns about potential delays in tax return processing and diminished enforcement capabilities.
Planned Workforce Reduction: The IRS is drafting plans to reduce its workforce by approximately 50%, equating to about 45,000 positions, through a combination of layoffs, attrition, and incentivized buyouts. This substantial reduction aligns with the administration's broader strategy to decrease the federal workforce and reallocate resources.
Operational Implications:
These budgetary and personnel cuts are anticipated to impact the IRS's ability to effectively process tax returns, provide customer service, and enforce tax compliance. The reduction in enforcement staff will lead to fewer audits, particularly of high-income individuals and corporations, affecting overall tax compliance and revenue collection.
These cuts are also causing the IRS to reassess its modernization efforts, including the integration of artificial intelligence technologies. What this means is that to adapt to these resource constraints while striving to maintain essential taxpayer services modernizaton efforts to make the agency more efficient will likely be scuttled.
It is estimated that these cuts will result in a $60 billion to $80 billion (or higher) reduction in collected taxes over the next 4 years. Thus adding Billions to our national debt each year.