Elon Musk’s Department of Government Efficiency claims its actions so far have saved taxpayers billions of dollars. But as Natasha Sarin notes in the Washington Post,
These estimates have been riddled with errors, and…they pale in comparison to the amount of money DOGE is about to lose. Just one move — the plan to shrink the Internal Revenue Service’s staff by up to 50 percent — would, very conservatively, lead to a $400 billion increase in uncollected taxes over the next decade. It could easily mean more than $2 trillion in losses.
Today, the IRS fails to collect about $700 billion in taxes owed each year. We know that going after tax evaders has huge returns: Recent academic work suggests that every dollar spent on auditing people in the top 10 percent of earners returns $12. Prior estimates from the Treasury Department’s inspector general suggest that each additional hour spent auditing a high earner generates nearly $5,000 in additional tax revenue.
The IRS can do a lot more of this work.Today, its audit rate of partnerships…is 0.1 percent. The IRS has historically been unable to pursue high-income “nonfilers” — people who do not file taxes at all — because it doesn’t have enough personnel or up-to-date technology….not pursuing it has cost the agency tens of billions of dollars.
Practically, we do not know how the IRS plans to shrink its workforce by 50 percent. But we do know it would blow a hole in the federal budget because it would mean less capacity to dohigh-return work, such as auditing the wealthy. If we assume the staffing reductions would affect all of the agency’s activities, that would mean half as many people answering the phones and half as many auditors in the field.
Tax season will be much less efficient without these employees. Just a few years ago, an understaffed IRS took years to process pandemic-era returns filed on paper, and during the 2022 filing season, it answered fewer than 20 percent of the calls that taxpayers made. Then, the agency had around 79,000 employees. The Trump administration is considering shrinking it to more like 50,000 employees — staffing at levels not seen since 1960, when the U.S. population was 160 million people smaller than it is today.
The upheaval at the IRS is already having real impacts. Sources familiar with the agency report that its level of phone service is falling, in part because employees are spending their time waiting to use shared computers to respond to DOGE’s requests for weekly emails detailing their work….And they report that taxpayer behavior is already adjusting to the reality of a diminished IRS workforce: IRS receipts — taxes paid already and taxes the agency is scheduled to receive from those who have already filed — are significantly lower than they were at this point last filing season.
Estimates from the Budget Lab at Yale, which I run, suggest that cutting the IRS by 50 percent would cost the agency nearly $400 billion ($350 billion net, once fewer salaries are accounted for) over the next decade. These estimates include both the direct losses to the agency from fewer audits and a conservative adjustment for “indirect” losses for the agency once its enforcement activity is depleted — i.e., people tend to be more comfortable running a red light if they don’t see any traffic cameras. But it is reasonable to think that these indirect estimates are understated because they rely on historical data, and cuts these draconian are outside of the range of anything the agency has experienced.
The $400 billion to $2 trillion in lost revenue projected by Sarin is likely overstated because DOGE ultimately recommended cutting the IRS by only around 20%, not 50%, in a March 13 email.
But even that 20% reduction would result in a huge amount of lost tax revenue, at least $160 billion over ten years. A 20% cut in IRS staffing would conservatively lead to at least $160 billion more in uncollected taxes over the next decade, and perhaps $800 billion more in uncollected taxes over the next decade.
So it would result in as much as $80 billion per year in lost tax revenue, far bigger than any actual savings achieved by DOGE in the rest of government. (DOGE claims to have saved $100 billion through its budget cuts, but those claims are riddled with errors and the true savings from DOGE’s other policies are probably closer to $10 billion than $100 billion.)
So DOGE’s recommendations as a whole will increase the federal budget deficit and the national debt, not reduce the national debt.
Even Republican tax experts said that IRS layoffs are a bad idea that will result in more people cheating on their taxes and the budget deficit increasing. The man President Trump picked to head the IRS in 2018, who served as the IRS commissioner until 2022, said the layoffs were a bad idea:
Former IRS Commissioner Chuck Rettig — who ran the agency during President Donald Trump’s first term — criticized the planned layoffs.
“An underfunded IRS significantly benefits unidentified, noncompliant taxpayers at the direct expense of compliant taxpayers,” he said, writing on LinkedIn.
Similarly, an economist at the conservative Manhattan Institute notes that “Laying off thousands of IRS agents will worsen budget deficits.”
