Yellen: Cutting IRS Funding Is ‘Damaging and Irresponsible’

Treasury Secretary Janet Yellen speaks about goals for the 2024 tax filing season at the IRS headquarters in Washington on Nov. 7, 2023. Stefani Reynolds/AFP via Getty Images

Cutting funding to the IRS would be a “damaging and irresponsible” policy that would negatively affect U.S. taxpayers, Treasury Secretary Janet Yellen says.

Ms. Yellen took aim on Nov. 7 at a House Republican-led proposal that would rescind $14.3 billion from the tax-collecting agency to cover the cost of an emergency aid package for Israel following the deadly Hamas terrorist attacks.

“The current proposals to cut funding for the IRS make this an especially crucial time to talk about the importance of this work,” she said in a prepared speech. “Playing politics with IRS funding is unacceptable. Cutting it would be damaging and irresponsible.”

She highlighted how the IRS collects 96 percent of the federal government’s revenue that funds the nation’s critical needs, such as Social Security, infrastructure, national security, and other key priorities.

Last year, President Joe Biden and Democrats extended $80 billion to the federal agency through the Inflation Reduction Act. The funding was intended to expand manpower, improve customer service, invest in better technology, and bolster tax enforcement. During the debt ceiling negotiations, the total amount was lowered to around $60 billion.

Republican critics say these efforts will ultimately hurt low- and middle-income taxpayers and small businesses. However, the White House has insisted that anyone earning under $400,000 won’t receive additional scrutiny.

Meanwhile, President Biden requested $106 billion in emergency foreign aid for Ukraine, Israel, Taiwan, and border security. House Speaker Mike Johnson (R-La.) recommended splitting Israel funding from the rest of the package and trimming the IRS’s budget to pay for the spending to keep from increasing budget deficits.

The legislation was approved on a 226–196 vote on Nov. 2; the measure is unlikely to be approved by the Democrat-controlled Senate. President Joe Biden has said he would veto the bill if it were to reach his desk.

On the subject of Ukraine funding, Ms. Yellen co-authored a letter to Congress urging lawmakers to approve the Biden administration’s $11.8 billion in financial support for Kyiv to help “them against Russia’s violent invasion.” By offering direct budget support, the United States can ensure “robust oversight and transparency” of taxpayer dollars and work with Ukraine to make “essential reforms.”

“A successful Ukraine will demonstrate the resolve of the United States and its partners to defend the territorial sovereignty and fundamental freedoms of democratic countries against authoritarian aggression,” the letter states.

CBO, CRFB Assessments

However, a nonpartisan budget watchdog warned that the support package could add billions to federal deficits.

The Congressional Budget Office estimated in an Oct. 31 report that the plan to cut IRS funding as part of the Israeli aid bill could add as much as $26 billion to the budget shortfall over the next 10 years by reducing what the IRS could collect through taxes.

While the Committee for a Responsible Federal Budget (CRFB) welcomed the House’s initiative to offset the supplemental bill, rescinding IRS funding would worsen the tax gap, the nonprofit policy organization stated.

“The supposed offset would actually worsen the deficit more than simply enacting the supplemental on its own because it would reduce the IRS’s capacity to collect revenue,” the group said.

It proposed a series of ideas that could offset the cost of the overall $100 billion emergency spending package over four years. Some of these include ending the individual and business state and local tax (SALT) deduction through the end of 2025, imposing a temporary 0.25 percent “offset surtax” on top of current income tax rates, and reducing all inflation-indexed federal government programs and provisions by 1 percent in 2024.

“But with $2 trillion annual deficits, policymakers need to start taking the federal debt much more seriously. That starts with paying for new initiatives,” the CRFB added.

Priorities Heading Into Tax Filing Season

The current administration has been eager to show off how the IRS has made a “tremendous leap forward” heading into the new tax filing season, which will begin in three months.

Ms. Yellen emphasized the massive investments allocated to enhance taxpayers’ customer service experience.

“We made a tremendous leap forward last filing season, for example, by drastically reducing phone wait times,” she said. “This filing season, we will build on this foundation and continue expanding services for taxpayers: by phone, online, and in person.”

Online support has also been revamped. Ms. Yellen says taxpayers can utilize the “Where’s My Refund?” program that will integrate conversational voice bot technology to ensure users can have their questions answered more quickly.

“And it will provide clearer and more detailed information so taxpayers can address barriers to processing their returns and receive their refunds quickly,” she added.

The IRS achieved its paperless processing initiative objective, allowing taxpayers to electronically upload and respond to notices. After resolving the paper backlog issue at the federal agency, it’s estimated that more than 94 percent of individual taxpayers won’t be required to send direct mail, which will lead to additional savings.

“The IRS will reduce errors and storage costs,” she said. “And we’ll speed up processing times for the system as a whole.”

IRS Commissioner Danny Werfel championed the administration’s goals following Ms. Yellen’s speech.

“Let me be as clear as possible. The IRS agenda in using Inflation Reduction Act funds is as follows: If you are middle- or low-income, better service; if you are wealthy, more scrutiny,” Mr. Werfel said.

In 2024, Tax Day will be April 15.