Democrats Allow More IRS Funding to Fade Away

[Celerity]

Concessions from the 2023 debt ceiling fight continue to haunt Democrats, and tax cheats could enjoy hundreds of billions in savings.

https://prospect.org/politics/2024-12-18-democrats-allow-more-IRS-funding-fade-away/

For the second straight year, President Biden and the Democrats are poised to sacrifice a significant chunk of one of their biggest accomplishments: funding for the IRS to go after wealthy tax cheats. With the latest maneuver, more than 90 percent of the money invested to scale up IRS auditing and oversight could be gone before it can even be used. Yet again, Democrats seem to have been outplayed by Republican leadership. In 2023, to appease then-Speaker Kevin McCarthy and get an extension of the debt limit, Biden agreed to an untenable set of spending caps for fiscal years 2024 and 2025 in what became known as the Fiscal Responsibility Act (FRA). In order to keep spending levels roughly flat in nominal terms (which, due to inflation, is functionally a cut in actual spending power), Biden also struck a “side deal” allowing Republicans to claw back $20.2 billion of the $46 billion in Internal Revenue Service enforcement funds provided by the Inflation Reduction Act (IRA), on top of $1.4 billion already sacrificed in the main FRA deal. In budget-speak, this is called a “rescission.”

In September, when Congress was unable to pass a budget for fiscal year 2025, it instead passed a continuing resolution (CR), which temporarily extends the most recent set of spending instructions. Because the preceding appropriations package instructed the IRS to hand $20.2 billion back, the September CR did as well—almost doubling the potential cut to the IRS. As a result, those funds have been frozen, raising the total stakes of the FRA to $41.8 billion less for the IRS to modernize its aging systems and go after rich scofflaws. With that September CR expiring Friday, lawmakers raced to pass another to fund the government through mid-March. The new 1,547-page CR, released Tuesday night, did not include a fix unfreezing the IRS’s imperiled enforcement funds. With Donald Trump and a Republican majority in Congress taking over in January, they can make the rescission permanent in a final spending package.

Because every dollar spent auditing wealthy tax-dodgers nets a return of up to $12, the “savings” of $41.8 billion in IRS funding will actually cost the government as much as $460 billion on net over time. In the short window of increased funding, the IRS made great strides, including updating massively out-of-date computer systems (multiple sources told me that the IRS had only recently been able to upgrade from an Apollo-era mainframe that had been around since the late 1960s). But the agency still isn’t fully back in fighting shape after decades of neglect. Despite the high stakes involved in this fight, including whether the IRS will be able to continue to audit high-wealth tax-dodgers, there has been little in the way of detailed reporting on the struggle to avert another costly clawback. Over the past two weeks, reporting for the Prospect, I interviewed 14 progressive tax policy experts involved in the effort to protect IRS funds (many of whom requested anonymity to speak candidly). What follows is an in-depth look at the current chapter in an ongoing battle to fend off Republican attempts to hollow out the IRS.

What Happened?

The story starts back in 2022, when Republicans won a narrow majority in the House. In order to secure his position as Speaker, Kevin McCarthy had to make serious concessions to his party’s right flank, the House Freedom Caucus, including allowing the Speakership to be challenged by a single member. In autumn of 2023, after successfully goading Biden to accede to major budget cuts, McCarthy attempted to renege and push through a package of even steeper spending cuts and harsh border policy to appease his right flank, only to be blocked by the same right flank. Democrats accused House Republicans of breaking the deal they made with President Biden, while McCarthy insisted that the limits he negotiated with Biden were a maximum and that spending below that ceiling was entirely in bounds. However, several moderate Republicans defected and joined Democrats to vote down the proposed spending package. Subsequently, McCarthy passed a temporary bipartisan spending bill, mostly with Democratic votes, that more closely matched the reported contours of his deal with Biden. Matt Gaetz—former Florida congressman, alleged sex-trafficker, Venmo aficionado, and failed attorney general nominee—subsequently accused McCarthy of working with Democrats over his own party and filed a motion to vacate the Speakership. McCarthy lost that vote.

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[no_hypocrisy]

1. Tax cuts when this demographic isn't paying and the IRS isn't collecting?

[walkingman]

2. I don't like that at all - it just gives validity to those that say both parties are the same when it comes

to pandering to the wealthy. I like to think that is not the case, but sometimes it makes you wonder.