A Republican Win on IRS Funding May Be a Complicated One

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Republicans have tried to push for an Internal Revenue Service (IRS) funding cut as part of the potential United States debt ceiling deal, and while this would be a win for the GOP, it would also impact the country’s deficit.

President Joe Biden and GOP House Speaker Kevin McCarthy are edging toward a deal that would prevent the country from defaulting on its debts, which Treasury Secretary Janet Yellen warned might happen as early as June 1 if the federal government fails to reach a resolution.

Biden and McCarthy are discussing a deal that would raise the government’s $31.4 trillion debt ceiling for two years while limiting spending on certain items, Reuters reported on Friday, citing an unnamed U.S. official.

The deal hasn’t been finalized, but it would increase funds allocated for discretionary spending on veterans and the military without increasing the current year levels of non-defense discretionary spending, according to the official. Republicans participating in the ongoing negotiations reportedly supported a White House suggestion to treat military spending and non-defense spending more equally.

Speaker of the House Kevin McCarthy arrives at the U.S. Capitol in Washington, D.C., on May 25, 2023. Republicans have been trying to push for an IRS funding cut as part of the potential U.S. debt ceiling deal, and while this would be a win for the GOP, it would impact the country’s deficit.
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The official also said that the White House is considering moving away from its plan to bolster IRS funding, which would allow the agency to hire more auditors and target wealthy Americans. A second U.S. official told Reuters that IRS funding is an open issue but said that it’s still important to make sure that the agency is implementing Biden’s priorities even if funds are moved around.

The IRS funding cut has been a hot-button issue for Republicans who are pushing for those cuts in an effort to reduce government spending, but congressional analysts warned that cutting agency funding would worsen the deficit, Politico reported on Monday.

However, funding the IRS would bring in money to the government far more than the amount of money that would be used to hire more auditors, according to Yellen.

“Something that greatly concerns me is that they [Republicans] have even been in favor of removing funding that’s been provided to the Internal Revenue Service to crack down on tax fraud,” Yellen said on Sunday’s episode of Meet the Press. “Equipping the IRS with the funding they need to audit high-income individuals and corporations, that’s something that doesn’t cost money. It nets money substantially for the federal government.”

In January, the GOP-controlled House voted to rescind around $80 billion in IRS funding that was approved by Democrats last year. The GOP push would cut projected tax receipts by $191 billion and would increase the deficit by around $120 billion over the next decade, according to the Congressional Budget Office.

McCarthy previously argued that rescinding the agency’s funding is necessary to “protect families and businesses from a weaponized IRS.”

William G. Gale, the Arjay and Frances Fearing Miller Chair in Federal Economic Policy at the Brookings Institution, told Newsweek that the GOP’s push to cut IRS funding is a “bait and switch strategy” on the part of Republicans.

“First of all, the IRS is not going to be ‘weaponized.’ Secondly, the IRS [has] made clear that the focus of its auditing efforts will be on high-income and high-wealth Americans. Third, cutting IRS funding will reduce revenues by even more, and so will raise future deficits rather than reduce them,” Gale said.

The debt ceiling debate has been ongoing between Republicans and Democrats who are trying to find a solution that satisfies both parties. Biden and McCarthy have been in stalled talks since February. House Republicans passed a bill raising the debt ceiling while slashing federal spending.

However, the bill might not pass in the Democrat-controlled Senate, as Biden has previously advocated for a bill that raises the debt ceiling without cutting spending on key federal agencies such as the Department of Transportation and the Department of Agriculture.

The final debt ceiling deal is expected to specify the total funding that the government could allocate to discretionary programs such as housing and education, a source familiar with the ongoing discussions told Reuters on Friday.

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