“Senior tax officials are bracing for a sharp drop in revenue collected this spring, as an increasing number of individuals and businesses spurn filing their taxes or attempt to skip paying balances owed to the Internal Revenue Service, according to three people with knowledge of tax projections. Treasury Department and IRS officials are predicting a decrease of more than 10 percent in tax receipts by the April 15 deadline compared with 2024, said the people, who spoke on the condition of anonymity to share nonpublic data. That would amount to more than $500 billion in lost federal revenue; the IRS collected $5.1 trillion last year. For context, the U.S. government spent $825 billion on the Defense Department in fiscal 2024,” reports the Washington Post:
The reason, officials say, is directly tied to changing taxpayer behavior and President Donald Trump’s rapid demolition of parts of the IRS. Senior tax agency officials issued detailed warnings about those outcomes to the incoming Trump administration before the president took office…The administration has moved to fire nearly 20,000 agency employees, specifically targeting new hires in taxpayer services and enforcement divisions. It’s already dismissed more than 11,000 workers at the agency, though some of their statuses are unclear pending fast-moving court cases.
The IRS has dropped investigations of high-value corporations and taxpayers, according to several agency employees involved in those inquiries, because it’s had to triage resources to keep internal systems operating…The IRS publishes weekly filing season reports that show the number of returns received and how officials are processing refunds. Those reports show the IRS has received 1.7 percent fewer returns this year compared to the same point in the 2024 filing season….the agency also makes more detailed, nonpublic revenue projections based on IRS measurements of scheduled payments from already filed returns and outstanding balances relative to similarly situated taxpayers in previous years.
Those calculations take into account the number of filers who have paid their balances or are owed refunds, have scheduled payments by the April 15 deadline, filers who have taken extensions, and measurements of annual noncompliance. That gives the agency deeper insight on the amount filers are paying….The IRS has noticed an uptick in online chatter from individuals declaring their intention to not pay taxes this year or to aggressively claim credits and deductions for which they are ineligible, three of the people said — wagering that auditors will not examine their accounts….The results could mean the government has to borrow more money to cover the cost of federal services. The IRS collects 95 percent of federal revenue each year. A shortfall in tax dollars, if Congress doesn’t cut spending to match, would drive up the national debt, which already sits at $36.2 trillion.
Even Republican tax experts say mass firings of IRS employees 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 IRS layoffs are 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.”
As a news story notes, “Forecasters generally agree that beefing up tax enforcement is a money maker for the Treasury because auditors bring in far more cash than it costs to employ them.” The Congressional Budget Office has estimated that tax collections would rise by at least $207 billion if $80 billion more were spent over a decade in expanding the IRS’s enforcement staff. Others have estimated that tax collections would rise by $560 billion if $80 billion more were spent on tax enforcement over a ten-year period.
