More IRS Budget Slashing Is Short-Sighted and Doomed to Fail

Last year, I laid out the challenges facing then-incoming IRS Commissioner Billy Long: a deeply troubled agency suffering from a shrinking and aging workforce, obsolete and unreliable technology, and taxpayers skeptical of fairness in tax enforcement.

He didn’t last two months. So my first recommendation to Long—bring stability—went out the window. The agency still lacks a permanent, Senate-confirmed commissioner, and there are no signs that will change soon.

Fast forward to President Donald Trump’s fiscal year 2027 budget request released earlier this month. Rather than increase investment in the IRS—given that its success is critical and that it is one of the few agencies on which every taxpayer relies—the president is intent on slashing the IRS’s budget while asking it to do more.

That would exacerbate its existing problems. Better technology and modernization can make the IRS more efficient, but budget cuts eliminate that funding. Fairness for the majority of taxpayers who follow the rules requires an IRS with enough resources to function.

The president’s budget proposal would weaken the IRS. Congress has already cut the agency’s funding from $12.3 billion in FY25 to $11.2 billion in FY26. Now Trump wants to cut by another $1.4 billion in FY27 to $9.8 billion—with reductions to enforcement, technology, and operations support, and a small boost to taxpayer services.

This proposal is the latest skirmish in an apparent campaign to hamstring the IRS’s ability to enforce tax laws. The Inflation Reduction Act of 2022 pumped nearly $80 billion into the agency to update woefully outdated technology and help with retention and enforcement. In the succeeding years, that money has been repeatedly slashed by a total of $53.5 billion leaving the IRS with roughly $10 billion remaining.

The reduction came despite Congress’ nonpartisan scorekeeper, the Congressional Budget Office, finding that sustained IRS investment in enforcement would raise about $180 billion over a decade by improving compliance at the top of the income scale.

The CBO has been blunt about the cost of pulling back. A $5 billion rescission reduces revenue by roughly $5.2 billion over a decade. A $35 billion cut slashes projected revenue by about $89 billion and adds more than $54 billion to the deficit by 2034. In other words, cutting enforcement doesn’t save money. It costs taxpayers more.

Beyond costing taxpayers, cuts in enforcement contribute to a large and expanding tax gap—the difference between taxes owed and taxes paid. The most recent estimate was $696 billion in tax year 2022, three-quarters of which was due to underreporting.

This isn’t coming from the vast majority of simple W-2 filers with some interest payments in their bank accounts. The gap is mostly the result of unreported business and pass-through income with little or no third-party reporting—the hardest kind to track and verify. The tax gap not only undermines fiscal responsibility, but also is unfair to law-abiding taxpayers and fuels cynicism about our voluntary tax system.

Cutting IRS funds likely would increase the tax gap and deepen inequality between those who follow the rules and those who don’t. Increased complexity from last summer’s tax cut reconciliation bill and any future tax breaks would add to the burden.

Making matters worse, the IRS has lost an estimated 25,000 employees over the past year. This dramatic workforce exodus compounds the budget cuts and leaves the agency struggling to execute even its current mission, let alone an ambitious modernization agenda.

The Government Accountability Office, the nonpartisan investigative arm of Congress, found that IRS staffing reductions eliminated dozens of AI-focused employees—including half the chief technology officer’s artificial intelligence team—and warned that, without a workforce plan to address the resulting skills gaps, “IRS AI efforts will not succeed.”

Despite the staff cuts, the president’s budget leans into technology and AI as a cure-all for the IRS’s woes. The IRS certainly continues to face a serious modernization challenge. A third of its applications and a quarter of its software is considered legacy. The IRS uses computer systems that were programmed in COBOL during the 1960s.

But over-reliance on new technology without fixing the underlying problems could make things worse. Anyone who’s called customer service and found themselves in a doom spiral of failed prompts and dead ends knows the risks. Technology is only as good as the experienced workforce behind it.

Lawmakers should reject the president’s proposed cuts and instead invest in the tools, technology, and personnel needed to provide an IRS that serves all taxpayers. That means updates geared toward making tax season easier for those following the rules and harder for those trying to cheat the system.

It means modernizing internal technology and increasing customer service. It means retaining experienced employees while responsibly deploying AI and new tech—ensuring experienced humans can step in when quick response chatbots are out of answers. It means reviving and expanding the Free-File system. And it means investing in enforcement that can tackle the complex and costly cheats responsible for the tax gap.

Taxpayers deserve a fair system. A system where high-earning taxpayers can avoid scrutiny while ordinary taxpayers are stuck with hallucinating chat bots is doomed to fail—and it’s the honest taxpayers who pay the price.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Steve Ellis is the president of Taxpayers for Common Sense, a national, nonpartisan budget watchdog based in Washington, D.C.

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