The story of the IRS’s funding within the context of the debt ceiling agreement and the Inflation Reduction Act (IRA) is complicated and has significant implications for the future of taxation in America.

The IRA’s initial promise was to address the tax gap, the average annual value of unpaid federal taxes, by enhancing enforcement and improving taxpayer services. Unpaid taxes are a serious issue in the United States. Between 2014 and 2016, the IRS estimated that the tax gap was $428 billion annually. The reforms made in the IRA aimed to modernize information technology systems, hire, and train additional personnel, and elevate taxpayer services.

The Congressional Budget Office estimated that an $80 billion package for IRS enforcement would raise $204 billion in gross revenue, resulting in $123 billion in net additional revenue. The Fiscal Responsibility Act (debt ceiling deal) cut the IRS funding boost by up to $21.4 billion over the next three years. The Biden administration downplays the cut, stating that the funding will now be exhausted in eight years instead of ten.

The IRS’s ability to modernize its technology and boost hiring is now at risk, and it is reasonable to expect this funding could be further reduced in the future or even redirected for other purposes.

Historical challenges in managing resources, staffing shortages in the IRS’s Human Capital Office (HCO), outdated technology dating back to the 1960s, and the need to balance enforcement activities with taxpayer service improvements all paint a picture of an agency facing significant challenges.

In discussing the IRS’s funding and its challenges, it’s crucial to draw a distinction between genuine challenges and allegations of waste, fraud, and abuse. While no agency is entirely free from inefficiency, applying a blanket policy of cutting funding to every institution accused of waste would extend to all government agencies, the Defense Department being a prime example.

Furthermore, the IRS has been underfunded for years and has been losing personnel in one of the oldest workforces in government. Between 2010 and 2019, the IRS’s inflation-adjusted funding declined by 19%. Additionally, the IRS workforce has shrunk by 9% when comparing its 2022 workforce to the workforce in 2013. With estimates suggesting that as much as 45% of the workforce will be eligible to retire in the next two years and only 3% of the workforce below the age of 30, this is a serious problem which requires an expediated solution.

It is terrible policy to sabotage an agency with fewer resources and then accuse it of dysfunction. In a recent Washington Post opinion piece, Catherine Rampell argued that despite the IRA’s lofty goals in tax enforcement, the increase in funding has been mis sold to the public, allowing opponents a more easy argument to cut funding. Rampell posits that by both cracking down on bad actors, who Americans largely agree should be held responsible for not paying their fair share AND creating a less painful experience for the average taxpayer, all sides’ goals would be accomplished, and the American taxpayer would only stand to benefit.

The real victims are American taxpayers, who stand to lose the most from a disabled IRS. A weakened IRS disproportionately benefits the wealthiest taxpayers. The same voices criticizing the efficacy of the IRS are often those simultaneously cutting its funding, creating a self-fulfilling prophecy that undermines the very function of the agency.

The IRA and the IRS’s funding is not just a tale of numbers and political maneuvers; it’s a story of what we value as a society and how we choose to prioritize our resources. If tax law is what you don’t like, then the solution is to change the law, not cripple the agency responsible for upholding it. This chapter of the IRS’s future is still being written, and the choices made today will shape the narrative for years to come.