DOGE cuts could cost the IRS $500bn: here’s what it means for tax season
Elon Musk promised to save the US $2 trillion in wasteful spending but his cost cutting may end up costing the US according to a warning from the IRS.
Since returning to the presidency, Donald Trump has been trying to reshape the US federal government. Part of that effort has been to downsize government agencies and the federal workforce.
He’s tasked his single biggest campaign donor, Elon Musk, with heading up the project at the head of the Department of Government Efficiency, or DOGE. The billionaire has been taking a chainsaw to reduce by his estimations $2 trillion in “wasteful” spending. But the IRS has warned the new Trump administration that those efforts could cost the government $500 billion.
DOGE cuts could cost the IRS $500bn
The Internal Revenue Service, prior to the passage of the Inflation Reduction Act in 2022, was facing significant underfunding and staff shortages. The agency went to work straight away employing the close to $80 billion initially approved to begin hiring 5,000 service representatives to improve customer service, answering phones and processing tax returns to ensure that taxpayers got their refunds in a timely fashion.
The IRS also used the funds to improve compliance efforts, ensuring that high-income taxpayers and businesses were paying their fair share to close the tax gap. The agency estimated that enforcement efforts reduced the gross tax gap for both 2021 and 2022 by $90 billion.
However, Treasury Department and IRS officials are now bracing for a whooping $500 billion drop in tax receipts, roughly 10% of the total take in 2024, by the 15 April Tax Day deadline due to the efforts of Trump and Musk’s DOGE to demolish the IRS reports The Washington Post. The administration was warned about this before Trump was sworn into office in January according to records the outlet obtained.
Taxpayers don’t think they’ll get caught if they don’t comply with IRS collections
The Trump administration has moved to layoff almost 20,000 IRS employees, targeting new hires and those in enforcement divisions. Investigations of high-value corporations and taxpayers have since been ended in order to keep internal systems running. While the agency has managed so far to keep things running smoothly, weak spots are beginning to appear.
The IRS is also noticing a change in taxpayer behavior with increasing number of businesses and individuals not filing tax returns or attempting to not pay balances that they owe sources told The Washington Post. Furthermore, the agency noticed an spike in online chatter of people “declaring their intention to not pay taxes this year or to aggressively claim credits and deductions for which they are ineligible.”
Those individuals figure that they will be able to get away with stiffing the IRS as auditors will not examine their accounts.
The smaller take of tax receipts would mean that the US government will have to borrow more money to keep federal services operating unless Congress can agree to cut spending to match the shortfall.
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