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Congress has clawed back about 25% of the IRS’s $80 billion in funding from the Inflation Reduction Act. President Biden made a key IRS concession in the recent debt limit deal. Biden agreed to reallocate $10 billion of the IRS’s windfall in 2024 and another $10 billion in 2025 to other spending priorities. Plus $1.4 billion more was cut. This means the IRS will now get nearly $59 billion over ten years for enforcement, modernization, etc., and not $80 billion.
It’s unclear how this will affect the IRS’s future activities. A Treasury official said that this funding drop won’t fundamentally change what the IRS plans to do over the course of the next few years, but it may cause the IRS to come back to Congress and ask for additional funds in six or so years.
But what’s to stop Republican lawmakers from demanding further cuts in the IRS’s funding? Republicans in the House and Senate have blasted the IRS’s additional funding from the moment it was enacted in August 2022. In fact, the first bill that passed the House after the GOP took control in January was to repeal most of the IRS’s $80 billion windfall. That bill died in the Senate. Republicans didn’t get everything they wanted in the debt limit deal when it came to the IRS. But expect them to stay persistent. Attacking the IRS is red meat for their voters.
And what will stop President Biden — or whoever the next president is — from making more concessions on the IRS funding front? Many tax experts didn’t think that Biden would agree to touch IRS’s funding in the debt limit deal, and they were wrong.
Right now, the IRS will likely stay the course, but only time will tell what the real impact will be.
This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.
