The debt-limit agreement exposes a potential risk to the $80 billion allocated to the IRS by Democrats last summer: its misuse as a congressional piggybank.
Nearly ten months after transferring funds to the agency, lawmakers are reclaiming a quarter of the money to prevent budget cuts to unrelated domestic programs.
Debt Increase Poses Challenges for IRS Plans
While this has aided the passage of the debt increase in Congress, some express concerns that it sets a precedent that could jeopardize the administration’s ambitious plans for the Internal Revenue Service (IRS).
Even after the debt battle concludes, lawmakers will continue to face requests for funding, while the agency will still have approximately $60 billion at its disposal, most of which will remain unused for several years.
The administration downplays the impact of the imminent $21.4 billion reduction, asserting that the funds allocated by Democrats to the IRS last year were always intended to be gradually distributed over the next decade.
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Debt Agreement Implications
According to the administration’s reasoning, instead of being depleted in ten years, the funds will now be exhausted in eight. However, following this logic, lawmakers may question why they cannot further reduce the timeline and utilize the savings for other purposes.
This represents a different threat compared to the focus in Washington prior to the debt battle. Attention was primarily centered on Republicans’ commitment to repealing the entire $80 billion, a promise made during the lead-up to the midterm elections.
However, with President Joe Biden in office and Democrats controlling the Senate, this repeal was never highly probable.
A less extreme but more substantial risk is that the IRS funds become entangled in unrelated budget disputes, forcing Democrats to choose between cutting funding for the agency and other initiatives they support.
This is precisely what is happening with the debt agreement between Biden and House Speaker Kevin McCarthy, who has agreed to allocate $20 billion from the funds to prevent cuts to domestic programs over the next two years, as their budgets are set annually by Congress.
According to estimates from the Congressional Budget Office (CBO) provided to Senator Sheldon Whitehouse, Chair of the Senate Budget Committee, this plan would actually increase the deficit by $19 billion.
Cutting IRS enforcement costs the government money, as auditors generate more revenue than their employment expenses. Although the plan would result in $21.4 billion in spending reductions, the CBO predicts that it would also reduce future tax collections by $40.4 billion.
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