IRS Funding Freeze Could Cost $140 Billion: Treasury Warns Congress

Treasury Officials Urge Congress to Release $20 Billion in IRS Enforcement Funds

U.S. Treasury officials are calling on Congress to release $20 billion in IRS enforcement funds that are currently frozen due to legislative language. These funds, which are separate from another $20 billion rescinded last year, are deemed crucial for IRS operations.

Treasury Deputy Secretary Wally Adeyemo has warned of severe consequences if the funds remain inaccessible. According to Adeyemo, inaction could lead to a $140 billion increase in the national deficit and significantly reduce IRS enforcement capabilities.

The potential impact on IRS operations is substantial. Without the release of these funds, the agency would face a hiring freeze and be forced to conduct fewer audits. Specifically, there could be 6,000 fewer audits of wealthy individuals and 2,000 fewer audits of large corporations. Adeyemo cautioned that the IRS might exhaust its enforcement budget by fiscal year 2025 if the $20 billion is not made available.

The broader fiscal implications of this funding issue are concerning. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, emphasized the negative impact on the federal deficit if IRS funding is reduced. With federal debt currently standing at approximately $36 trillion and increased borrowing costs due to post-pandemic inflation, there are growing concerns about potential backsliding on IRS funding that aids tax collection.

This situation unfolds against a backdrop of recent changes to IRS funding. The agency initially received an $80 billion boost from the Inflation Reduction Act, but subsequent deals have resulted in funds being clawed back. In 2023, $1.4 billion was rescinded, and $20 billion was diverted from the IRS to other programs.

The political landscape adds another layer of complexity to the issue. With President-elect Donald Trump and a Republican majority in Congress on the horizon, significant policy changes may be forthcoming. Trump has previously made unsubstantiated claims about IRS enforcement agents, and Republicans have threatened to cut IRS modernization funding and the Direct File program.

As the debate over IRS funding continues, the potential consequences for tax enforcement and the national deficit remain at the forefront of discussions between Treasury officials and Congress.