8 Reasons Cutting the IRS Budget Is Actually Bad for Taxpayers

Everyone who is trying to get ahead financially dislikes paying taxes. So, you might cheer when you hear reports that the IRS could soon see its budget cut.

But scaling back resources at the IRS could backfire on taxpayers. Here are some key reasons why cuts in IRS funding could damage your bottom line.

The Direct File pilot program was available in 12 states last year and offered a way for taxpayers to file their taxes for free.

Of the taxpayers who used the program, 90% reported a positive experience, according to the U.S. Department of the Treasury.

While the feedback has been good, cuts to the IRS budget could mean Direct File won't evolve into a nationwide program. Ultimately, this means many taxpayers will need to pay to file their returns through filing services.

The Direct File program has expanded to 25 states this year. But it's possible forward momentum will stop if funding is reduced.

The main purpose of the IRS is to gather taxes from citizens and businesses. These taxes help fund important programs and services.

If funding is cut, the IRS will have a harder time collecting revenues. That could make it harder to fund things that improve the lives of millions of citizens.

In recent years, America has gone on a spending spree that has put the nation more deeply into the red. If tax revenues shrink, the federal government's budget deficit is likely to increase.

In 2022, the IRS saw a large increase in funding thanks to the Inflation Reduction Act. With $80 billion originally allocated to the agency, the IRS hired more workers and invested in new technologies.

Additionally, the agency's customer service arm operated more efficiently. The percentage of answered phone calls at the IRS jumped from 15% to 85% in 2023, according to the Institute on Taxation and Economic Policy.

Those gains could be at risk if funding is cut.

Some experts worry that a lack of tax enforcement will encourage more people to work in industries that operate in cash.

For example, a worker might choose to work in construction because the cash-based operation makes it easier to skip paying some taxes.

With fewer IRS employees to enforce tax law, some folks might engage in tax evasion on a broader scale.

In the recent past, every dollar the IRS invested into auditing the wealthiest 10% of taxpayers in the country yielded up to $12 in returns, according to the group Joint Economic Committee Democrats.

That fact suggests that the more money the government pours into the IRS, the bigger the return in tax revenues will be.

With fewer dollars earmarked for the IRS, it's possible that more wealthy people will underpay on taxes.

The tax gap — which represents the difference between how much the government is owed and how much the government actually receives — might increase if the enforcement arm of the IRS shrinks.

That means the government will be cheated out of money it rightfully deserves to receive.

The IRS has said it will have to shrink its staffing if it undergoes budget cuts. Fewer staff members mean more delays for taxpayers seeking assistance from the IRS.

Unfortunately, this could make completing your taxes more of a hassle than it would be otherwise.

As you build your wealth, there is no way to escape paying taxes along the way. If the IRS has fewer resources, it may become more expensive to file a return, and more difficult to get the help you need.

Regardless of what happens to the IRS, anyone who needs help navigating the tax system should consider enlisting the help of a competent tax professional.