Speaker Johnson Doubles Down on Stripping IRS Funds for Israel Support

Days after the House passed a $14.3 billion Israel emergency aid package, the chamber’s new leader defended Republicans’ decision to fund the bill by clawing back enforcement resources from the IRS.

The standalone Israel support bill advanced November 2 by a 226-196 margin. Twelve Democrats joined the Republican majority while Representatives Thomas Massie (R-KY) and Marjorie Taylor Greene (R-GA) voted against the proposal.

Many conservative lawmakers, going back as far as spring 2021, have opposed giving the IRS funding to hire additional enforcement personnel, warning that a supposed 87,000 influx of agents would spur an uptick of audits against working class taxpayers. Republican leadership on the Hill vowed to undo the 10-year, $80 billion appropriation to the IRS under the Inflation Reduction Act (PL 117-169) ahead of the 2022 elections when the House was narrowly flipped.

House Speaker Mike Johnson (R-LA), appearing on Fox News Sunday over the weekend, maintained that Israel aid should be paid for by rescinding IRS resources under the enforcement bucket. “It’s more important to protect Israel right now than it is to hire more IRS agents.” On Thursday, Johnson told reporters that Congress needs to make “tough decisions” to offset costs and balance the budget, but Democrats are unconvinced, chalking up the proposal to mere partisanship. Republicans, on the other hand, maintain the Inflation Reduction Act was rushed through the Democrat-controlled Congress in the first place.

This latest tug-of-war over IRS funding comes at a time when the IRS, under Commissioner Danny Werfel, is looking to use Inflation Reduction Act resources to respond to criticism of its recent enforcement practices, which has escalated over the course of this year in the wake of a study finding that Black taxpayers, especially earned income tax credit claimers, are disproportionately audited more than others. For more on the findings of what the tax community refers to as the “Stanford study” — confirmed by Werfel himself — see Analysis: How the Tax World Has Responded to Stanford’s Study on Black Audit Rates (08/03/2023).

Senate Finance Committee Chair Ron Wyden met with the IRS chief last week to review the agency’s game plan for ensuring that taxpayers are not treated differently based on race. The inflation bill money is meant to raise revenues by targeting high-income and large corporate tax evaders, the Biden administration’s Treasury Department has held, and not through increased scrutiny of those making under $400,000 beyond ‘historical levels.’

“Commissioner Werfel is taking this issue seriously and is on the right track toward making the tax enforcement system fairer while striving to fully eliminate bias from its audit selection methods,” Wyden said in a November 1 statement. “I’m encouraged that the IRS is using IRA funding to help lower-income taxpayers get it right, in lieu of poorly targeted audits. For example, it is opening or re-opening 50 walk-in centers, leveraging technology to help answer questions and reduce wait times for those who need to call.”

Because the IRS’ enforcement aspirations over the next decade emphasizes collecting the largest amounts of unpaid balances, per its Strategic Operating Plan, Werfel warned the House Republican bill would have long-term budget ramifications. He told the Washington Post that stymieing efforts to close the tax gap would add an $90 billion to the deficit through 2033, much more than the Congressional Budget Office’s estimate of $12.5 billion.

Previous Commissioner Chuck Rettig during his tenure admitted the IRS turned to cheaper, simpler audits since 2010 as the agency’s annual budget dwindled year-over-year. As explained by a Congressional Research Service report released October 25 and updated November 6, the “likelihood that high-income taxpayers will face an audit has fallen by more than the same decline in audit probability for lower-income taxpayers.”

The report, compiled by Public Finance Analyst Brendan McDermott, said that although “the audit rate for those earning over $5 million fell by 66% for returns from tax years 2010 to 2019, the rate for those earning below $25,000 fell by 57%.”