Experts: IRS layoffs could hurt revenue collection and foil efforts to go after rich tax dodgers
WASHINGTON — The layoffs of roughly 7,000 IRS probationary workers beginning this week likely mean the end of the agency’s plan to go after high-wealth tax dodgers and could spell disaster for revenue collections, experts say.
The majority of employees shown the door at the federal tax collector are newly hired workers focused on compliance, which includes ensuring that taxpayers are abiding by the tax code and paying delinquent debts, among other duties.
The IRS layoffs, one of the largest purges of probationary workers this year across the government, could also hurt customer service and tax return processing during tax season this year, the union representing Treasury Department employees warned Thursday.
The upheaval comes less than two months before the tax filing deadline and as the Department of Government Efficiency under Trump adviser Elon Musk seeks to shrink the size of the federal workforce in an effort to radically cut spending and restructure the government’s priorities.
Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, said on a Thursday call with reporters that the layoffs at the IRS will disproportionately harm enforcement efforts.
“When you underpay and understaff the IRS, the agency doesn’t have the power or the resources it needs to go after wealthy tax evaders with their high priced lawyers,” she said, adding, “The result is, of course, a disaster for revenue.”
The Inflation Reduction Act, signed into law by President Joe Biden in 2022, gave the IRS $80 billion and the ability to hire tens of thousands of new employees to help with customer service and enforcement as well as new technology to update the tax collection agency, though congressional Republicans later clawed back some of the money.
Former IRS Commissioner Daniel Werfel, appointed by Biden, placed a particular focus on aggressively auditing high-income tax cheats as well as executives who use business aircraft for their personal use while still writing it off as a tax expense and wealthy people who sought to get favorable tax treatment through Puerto Rico without meeting certain tax requirements.
A Congressional Budget Office report issued last year describes how rescissions in funding for the IRS affect baseline projections of future revenues, offering a variety of scenarios depending on the severity of the cuts.
A $5 billion rescission would reduce revenues by $5.2 billion from 2024 to 2034 and increase the deficit by $0.2 billion. A $20 billion rescission would reduce revenues by $44 billion and increase the deficit by $24 billion for the same period. A $35 billion rescission would reduce revenues by $89 billion and increase the cumulative deficit by $54 billion.