Director of Federal Tax Policy
As the Senate begins allocating available resources among its appropriations subcommittees following enactment of the new bipartisan budget agreement, IRS enforcement warrants special attention given the major cut it’s faced over the past decade. The Senate allocation should provide the Financial Services and General Government Subcommittee, which oversees the IRS, with sufficient resources to at least match — and preferably exceed — the House-approved $567 million boost in IRS enforcement next year.
Since 2010, policymakers have slashed funding for IRS enforcement and operations support (which includes functions that support the enforcement division, like office space and information services) by roughly one-quarter, after adjusting for inflation (see chart). The enforcement and operations support divisions have lost 28 percent of their workforce.
These cuts have undermined the IRS’ ability to perform its core function of enforcing the nation’s tax laws. For example, the IRS audited just 3.2 percent of millionaires in 2018, down from 8.4 percent in 2010. The agency acknowledged that the drop reflects the loss of many of its top auditors, who handle these often-complex returns.
Recently, however, bipartisan support has grown for rebuilding IRS enforcement. IRS Commissioner Charles Rettig says he believes in “strong, visible, robust enforcement.” Both the President’s 2020 budget and the 2020 Financial Services and General Government appropriations bill that the House passed in June (before the new budget agreement) included $400 million in additional IRS enforcement funding that wouldn’t count against the overall cap on non-defense discretionary (NDD) funding. This approach acknowledges the special nature of IRS enforcement funding, which yields several dollars in revenue for every additional dollar spent.
Rebuilding IRS enforcement will require a multi-year funding commitment because the IRS must hire and train a significant number of auditors and other staff, which requires time and some funding certainty. As we’ve written, a reasonable initial goal would be to return IRS enforcement to the inflation-adjusted 2010 funding level over the next four years. That would mean raising funding (relative to the 2019 level) by $970 million per year in each of the next four years for the enforcement and operations support accounts.
In total, the House-passed 2020 appropriations bill included a $567 million increase for IRS enforcement over 2019: $167 million inside the NDD cap and $400 million outside the cap. That’s an important step forward, but still short of what’s needed. The new budget agreement doesn’t allow for any IRS funding outside the caps, so all funding for the IRS must occur within the cap, but policymakers should still make IRS enforcement and operations a priority. Given the depleted state and critical importance of IRS enforcement, the Senate increase should get as close to $970 million as possible.