Senate Democrats are requesting the Treasury Inspector General for Tax Administration (TIGTA) to look into recent and planned IRS staffing reductions that they say will have “profound effects” on the agency’s ability to process tax returns this filing season.
The 18 lawmakers point to the Trump administration’s recent move to fire almost 7,000 IRS employees and to close over 100 Taxpayer Assistance Centers, as well as reports of an impending 50% reduction to the IRS’ workforce. They urge TIGTA Acting Inspector General Heather Hill, in a March 5 letter, to conduct an evaluation of the potential impacts on IRS operations.
Specifically, they ask TIGTA to investigate whether the staffing cuts undermine recent progress at the IRS to improve collection and enforcement efforts. They also ask about impacts to taxpayer services. Former IRS Commissioner Danny Werfel had touted recent taxpayer experience gains, including improvements to phone, digital, and in-person services and the implementation and expansion of the free e-filing system, Direct File.
Taxpayer service, compliance woes.
“I’m basically terrified and entirely perplexed by what we’re seeing,” said Natasha Sarin, a Yale University professor and former counselor to past-Treasury Secretary Janet Yellen.
Sarin, speaking at a March 6 Semafor event, said a reduction in force of 50% of the IRS’ workforce “would mean putting the IRS back, literally, to the 1960s in terms of staffing levels.”
Sarin called the Trump administration and Department of Government Efficiency’s (DOGE) efforts to cut IRS staffing “essentially a several trillion-dollar giveaway to tax cheats.” And she said the effects could already be seen in the tax world.
“Why should people, particularly people who have complex structures like partnerships, even file taxes” if IRS enforcement is gutted, asked Sarin. “Why should they not take incredibly aggressive tax positions in a world in which the agency doesn’t have any capacity to be able to pursue them?”
And the move by the current administration is also perplexing from a revenue perspective, said Sarin. She noted “all these claims about the importance of dealing with waste, fraud, and abuse across government,” doing “real deficit reduction,” and finding ways to raise revenue. “Decimating the agency has, literally, the exact opposite effect.”
A broken Tax Code.
To Cato Institute’s Adam Michel, the IRS funding debate “really hinges on the broken Tax Code that Congress has created.”
Michel, also speaking at the Semafor event, contended that if we simplify the Tax Code then “we wouldn’t need a significantly larger IRS.” He specifically pointed to loopholes, deductions, exemptions, and complex international rules that he said the IRS “spends so much time trying to figure out.”
As far as IRS staffing cuts, Michel said it’s “unclear where the reductions are going to come from.” He saw no problem with “right-sizing” the IRS and returning it to pre-Inflation Reduction Act levels, while “reprioritizing” resources to activities like phone services, technology, and modernization.
Michel takes issue with ramped-up IRS enforcement efforts under the Biden administration. “I think that enforcement has a lot of collateral damage,” he said, explaining that it can lead to business closures, have impacts on startups, and burden many small businesses. And the IRS has “particularly low success rates” when they bring cases in “complex scenarios,” added Michel.
Unfocused cuts.
But IRS staffing cuts so far have targeted probationary employees, not specifically those involved in enforcement. Many of these newer staffers had been focused on “improved taxpayer services” and fraud and identity thief detection, said Barry Johnson, a fellow at the Tax Policy Center.
And before the Inflation Reduction Act funding bump, IRS staffing levels were at a historic low. “At the end of FY2021, the IRS had just over 80,000 employees — a drop from 94,346 in 2010 even as the total number of filings jumped by 13 percent,” said Johnson. And of those employees, “more than 60 percent were eligible to retire within six years.,” he added.
The lawmakers in their letter, too, point to a drop in IRS funding pre-Inflation Reduction Act. They contend that “[b]etween 2010 and 2021, the agency’s budget was cut $2.7 billion in real terms and staffing fell 22%, while the number of tax filers increased.”
Worse, the lawmakers say, the Inflation Reduction Act funding allowed the IRS to make investments that would “pay for themselves many times over” if not rolled back.
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