GOP's cut to IRS funding in debt limit plan would backfire

Republicans say they’re trying to reduce government red ink but their demands to cut IRS funding as part of a debt limit deal would actually worsen the deficit.

Forecasters generally agree that beefing up tax enforcement is a money maker for the Treasury because auditors bring in far more cash than it costs to employ them.

Republicans’ proposal to rescind $71 billion in IRS funding pushed through by Democrats last year would cut projected tax receipts by $191 billion over the next decade, the nonpartisan Congressional Budget Office estimates.

The result: The government would find itself an additional $120 billion in the hole.

Republicans, who’ve campaigned hard against the IRS money since last summer, have mostly ignored the budget warnings, arguing they are trying to protect average Americans from zealous tax collectors.

Democrats disagree, saying they will train the IRS’s scrutiny on the rich while emphasizing the dividends the effort will pay to the public fisc.

Appearing Sunday on NBC’s Meet the Press, Treasury Secretary Janet Yellen said potential IRS funding cuts are ”something that greatly concerns me.”

“Equipping the IRS with the funding they need to audit high income individuals and corporations — that’s something that doesn’t cost money,” she said. “It nets money, substantially, for the federal government.”

Appearing on the same program, Rep. Byron Donalds (R-Fla.) said: “All Joe Biden’s trying to do is find every possible nickel out of every couch from every American to pay for his radical spending. Why would we do that?”

The back-and-forth comes as lawmakers edge toward a June 1 deadline for raising the legal cap on government borrowing.

The IRS funding cuts are part of a sweeping plan by House Republicans that pairs a debt ceiling increase with nearly $5 trillion in budget cuts over the next decade.

The projected hit from rescinding the IRS funding is essentially the reverse of what happened last year, when Democrats pushed through a one-time $80 billion cash infusion for the IRS — about six times its annual budget — in a bid to overhaul the agency.

More than half of that money was earmarked for improving enforcement, with Democrats promising to reverse a long-term decline in audits of wealthy individuals, business partnerships and large corporations.

The IRS has just 2,600 people who are responsible for examining the 390,000 wealthiest Americans, including people making more than $10 million and large corporations, Commissioner Danny Werfel told lawmakers last month.

And their filings, he added, can be exceedingly complex.

“The returns that come from our wealthiest filers are sometimes thousands, tens of thousands and sometimes hundreds of thousands of pages long,” said Werfel.

Though forecasters agree spending a dollar on an audit generates that and more in savings to the government, how much more is disputed. CBO initially said last year that Democrats' plans would produce an additional $207 billion in revenue, which, once the $80 billion was taken into consideration, would save a net $127 billion over a decade.

The agency later ratcheted that down to $100 billion after Yellen, in response to Republican complaints, said the IRS would not increase audits of people making less than $400,000.

Democrats have long groused CBO was lowballing the estimates. And Natasha Sarin and Mark Mazur, two former top Biden tax officials, published a paper this week arguing the savings could be multiples larger than what CBO anticipates.

The savings will take years to materialize and are subject to debate because it will depend in part on how many examiners the IRS can hire, something that could be tough in the tight labor market, and how quickly it can train them.

It also depends on assumptions on how long audits would likely last, and how many will be won by the IRS. A substantial share of examinations, including more than a quarter of those involving people making between $1 million and $5 million, find the taxpayer owes nothing more.

The administration says the additional funding will reduce the share of these “no change” audits because it will have more high-powered auditors on staff and will be able to fine tune how it decides whom to examine.

The IRS aims to hire an additional 12,000 people in enforcement over the next two years, which would be a 36 percent increase.

While Republicans want to cancel the enforcement money, they would spare about $8 billion Democrats pushed through last year as part of their climate and health care legislation. That includes $3.2 billion to improve taxpayer services and $4.75 billion to modernize the agency’s business systems.