IRS Loses About $21 Billion Due to Debt Limit Deal: Kiplinger Tax Letter

Only time will tell the impact of a key budget concession involving the IRS.

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Congress has clawed back about 25% of the IRS’s $80 billion in funding from the Inflation Reduction Act. President Biden made a key IRS concession in the recent debt limit deal. Biden agreed to reallocate $10 billion of the IRS’s windfall in 2024 and another $10 billion in 2025 to other spending priorities. Plus $1.4 billion more was cut. This means the IRS will now get nearly $59 billion over ten years for enforcement, modernization, etc., and not $80 billion.

It’s unclear how this will affect the IRS’s future activities. A Treasury official said that this funding drop won’t fundamentally change what the IRS plans to do over the course of the next few years, but it may cause the IRS to come back to Congress and ask for additional funds in six or so years. 

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But what’s to stop Republican lawmakers from demanding further cuts in the IRS’s funding? Republicans in the House and Senate have blasted the IRS’s additional funding from the moment it was enacted in August 2022. In fact, the first bill that passed the House after the GOP took control in January was to repeal most of the IRS’s $80 billion windfall. That bill died in the Senate. Republicans didn’t get everything they wanted in the debt limit deal when it came to the IRS. But expect them to stay persistent. Attacking the IRS is red meat for their voters. 

And what will stop President Biden — or whoever the next president is — from making more concessions on the IRS funding front? Many tax experts didn’t think that Biden would agree to touch the IRS’s funding in the debt limit deal, and they were wrong. 

Right now, the IRS will likely stay the course, but only time will tell what the real impact will be.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

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Joy Taylor
Editor, The Kiplinger Tax Letter

Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.