The Trump administration is continuing its offensive against the Internal Revenue Service by proposing a $2.5 billion cut to the agency’s budget for FY2026. In the White House’s “skinny budget” released on May 2, the IRS’s budget is slashed by $2.488 billion, with only three sentences devoted to explaining why. While noting that the budget reduction “would protect functions in Taxpayer Services,” it also states that “[t]he Budget ends the Biden Administration’s weaponization of IRS enforcement” and would “eliminat[e] certain complex tax credits and technology improvements.” For FY2025, the IRS received $12.3 billion in annual appropriations. If approved by Congress, the President’s proposed FY2026 budget would return to IRS to funding levels not seen since the early 2000s.
The President’s proposed budget cut is just the latest in a long line of attempts to reduce funding for the IRS over the course of the last decade. In 2022, however, the Inflation Reduction Act specifically allocated $80 billion in additional funding for the IRS, but those funds have been slowly subject to recission over the last two years. The most recent recission occurred in March 2024 when $20 billion was clawed back as part of a government funding deal.
In testimony before a House Appropriations subcommittee earlier this week, Treasury Secretary Scott Bessent defended the President’s budget proposal, saying that the bulk of the IRS funding decrease should come from information technology funding. According to Bessent, “the IRS still needs significant reforms to deliver efficient and cost-friendly results for the American people.” He further testified that “we have successfully cut $2 billion from the IRS IT budget without any operational disruptions.”
Budget cuts at the IRS, combined with significant job cuts (which we wrote about here), will almost certainly affect the tax agency’s ability to carry out its core mission of ensuring tax compliance and collecting tax revenue. Researchers at the Budget Lab at Yale University, a non-partisan policy research center, estimate that the IRS could forego anywhere from $395 billion to $2.4 trillion in tax revenue over the next decade due to lower tax compliance and a decline in audits. And it is important to note that the IRS is one of the few federal agencies that generates a positive return on investment. For example, while estimates vary, the nonpartisan Congressional Budget Officer has estimated that each dollar allocated to the IRS for enforcement typically generates a return on investment of $6.40.