House Republicans’ plan to pay for emergency aid to Israel by cutting the Internal Revenue Service’s budget would increase the deficit by $90 billion over 10 years, the chief of the tax agency said Tuesday.
Seeking to pay for $14 billion of proposed aid to Israel sought by both parties, Speaker Mike Johnson (R-La.) on Monday unveiled legislation that would cut roughly $14 billion from funds recently approved by Democrats to expand the IRS. But Daniel Werfel, who was nominated by President Biden as the IRS commissioner last year, said the cuts would lead to greater expense by reducing audits of the wealthy and large corporations and hampering the agency’s ability to collect revenue that funds the government.
The nonpartisan Congressional Budget Office said last year that the $80 billion IRS expansion would cut the deficit by more than $100 billion by improving collections and enforcement. The IRS expansion was approved to pay for Democrats’ Inflation Reduction Act, Biden’s signature economic legislation, in 2022.
Although it specifies that taxpayer services would be spared from cuts, the House GOP bill does not identify precisely how it would cut $14 billion from that $80 billion expansion that has improved a broad range of agency functions. The GOP bill also would prohibit the CBO from counting the legislation against existing domestic spending caps. The nonpartisan budget office estimated that the GOP bill would add $12.5 billion to the deficit through 2033 – far less than Werfel’s estimate of $90 billion.
“This type of the cut, over the cost of the Inflation Reduction Act, would actually cost taxpayers $90 billion – that’s with a ‘B,’ ” Werfel told the Washington Post.
The IRS has said it is ramping up efforts to focus on taxpayers with more than $1 million of income and more than $250,000 of outstanding tax debt. Starting in September, the IRS has started contacting about 1,600 new taxpayers in that category who collectively owe hundreds of millions of dollars in taxes, according to the Treasury Department.
An agency spokesperson said the IRS had allocated a small portion of the Inflation Reduction Act funds – $2.4 billion out of roughly $80 billion in total – as of August 2023. With that funding, the tax agency vastly improved customer service, answering roughly 85 percent of taxpayer phone calls during filing season, compared with barely 20 percent in 2022.
“All of those funds go to increased scrutiny on tax evasion going on at the highest wealth, and that is millionaires and billionaires and large corporations and large complex corporations,” Werfel said. “When you reduce those audits, you reduce the amount of money that we can collect and return to the Treasury for other priorities.”
Werfel’s assertion, which is based on IRS modeling that shows a 6-to-1 ratio of money spent on tax enforcement to revenue collected, complicates the GOP’s attempts to characterize President Biden as fiscally irresponsible. In the days since becoming speaker, Johnson has argued that the $14 billion of aid for Israel must be paid for by cutting other parts of the federal budget, citing the nearly $2 trillion annual deficit facing the country this year.
Not all Republicans backed Johnson’s proposal.
“I think it was intellectually lazy,” Rep. David Schweikert (R-Ariz.), the vice chairman of the Joint Economic Committee, told The Post. “Rhetorically, it’s sort of what we’ve always done. It’s a little hard to have, ‘I care about debt,’ and then at the same time move something as your pay-for that actually will have a multiplier of raising the debt.”
A spokeswoman for Johnson did not immediately respond to a request for comment about Werfel’s estimate.
“We’re going to find the cuts elsewhere to do that,” Johnson told Fox News on Sunday, adding that he had communicated that demand to Biden aides in meetings at the White House.
Johnson also told Fox News on Tuesday: “If you put this to the American people, and they weigh the two needs, I think they are going to say standing with Israel and protecting the innocent is in our national interest, and a more immediate need than IRS agents.”
Rep. John Rose (R-Tenn.) told The Post that he was “doubtful” the IRS budget cuts would prevent the agency from collecting as much revenue. He said Johnson’s plan was less about hamstringing the IRS, long a conservative bugaboo, and more about an opening salvo in what Republicans hope will be the new speaker’s strategy to attack federal spending.
“I see this less about the leveraging the IRS and more about paying for something we [Republicans] all can agree on,” Rose said.
Analysts see Johnson’s proposal as designed to win enough Republican support to pass a bill through the House – and then negotiate a compromise solution with the Senate and White House.
“As I understand it, it was designed to unify Republican support for the bill. As a stand-alone, you think they’d go for something easier because this is just not going to fly in the Senate,” said Doug Holtz-Eakin, a former director of the CBO who is now the president of the American Action Forum, a conservative group. “This is a new speaker trying to get the bill off his floor – and then they’ll figure it out in negotiations with the Senate.”
That’s how Johnson’s closest congressional allies expect him to run the chamber, Sen. Bill Cassidy (R-La.), who has known Johnson for nearly a decade when they both served in Louisiana state government, told The Post.
“A speaker has to figure out where the collective will is and persuade others to join,” Cassidy said. “I think he’s showing his instinct there.”