In a move to fund a $14.3 billion emergency aid package for Israel, the Republican-controlled House has proposed cutting funding to the Internal Revenue Service (IRS). However, the plan, spearheaded by newly minted House Speaker Mike Johnson, is facing significant challenges in the Democrat-controlled Senate. Moreover, a recent analysis by the nonpartisan Congressional Budget Office (CBO) has revealed that slashing IRS funding would actually exacerbate the deficit, contradicting the intended goal of saving money.

According to the CBO, if $14.3 billion is cut from the IRS budget, the deficit would increase by almost $12.5 billion over the next decade. Therefore, the combination of sending aid to Israel and reducing IRS funding would result in a total deficit increase of approximately $26.8 billion over the same period.

One of the consequences of cutting IRS funding would be a hampered ability to enforce tax collection efforts, leading to fewer audits of tax evaders. This, in turn, would result in a decreased amount of tax revenue collected by the agency. The CBO estimates that implementing Johnson's proposal would lead to the IRS collecting nearly $26.8 billion less in revenue over the course of ten years.

It is worth noting that a significant portion of the IRS funding approved last year through the Inflation Reduction Act, worth $80 billion, was designated for strengthening enforcement efforts. The agency aimed to crack down on high-income earners and large corporations that have allegedly not met their federal tax obligations. Notably, the IRS has already made strides in this area, having collected $160 million in back taxes by focusing on millionaires this year.

Critics argue that by cutting IRS funding, House Republicans' proposed legislation would disproportionately benefit wealthy individuals and corporations, enabling them to evade taxes. This, in turn, would place an increased tax burden on honest, hardworking families who dutifully pay their taxes with every paycheck, according to Treasury spokesperson Ashley Schapitl.

It is worth mentioning that Republicans did not support the Inflation Reduction Act, including the $80 billion allotted for the IRS, when it passed through Congress last year. Since then, the GOP has made several attempts to reclaim portions of the funds, with some representatives even calling for the complete abolition of the IRS.

Earlier this year, Republicans were successful in rescinding $20 billion from the IRS as part of a broader deal to address the debt ceiling. Furthermore, some Republican lawmakers have repeatedly claimed that the new funds would be used by the IRS to hire 87,000 auditors who would target average taxpayers and small business owners. However, the Biden administration has clarified that those earning less than $400,000 a year will not face tax increases due to the additional funding.

The federal investment in the IRS has also been allocated to modernization efforts and improving customer service, taking into account years of budget declines. Already, the new funding has had a positive impact on taxpayer services. In the 2023 filing season, the IRS answered 3 million more calls and significantly reduced phone wait times, cutting them from 28 minutes to just three minutes compared to the previous year.

Looking ahead, the IRS is planning to launch its own free tax filing program called "Direct File" as a limited pilot program next year. Additionally, the agency aims to digitize all paper-filed tax returns by 2025, which is projected to cut processing times in half and expedite refund procedures by four weeks. These advancements are part of the IRS's ongoing efforts to streamline operations and enhance efficiency in serving taxpayers.

As debates over funding priorities continue, the proposed plan to cut IRS funds for Israel aid faces an uphill battle in the Senate. The CBO's warning that such cuts would actually increase the deficit has brought to light the complex economic implications of such a decision. Ultimately, finding a balance between fulfilling aid commitments and maintaining responsible fiscal policies remains a pressing challenge for policymakers.