Proposed Reductions to IRS Funding

On June 5, the U.S. House Committee on Appropriations introduced an appropriations bill that allocated specific funding for the federal government’s financial services functions. The bill included funding reductions that have sparked controversy, particularly regarding the IRS.

The budget proposed reducing IRS funding. Democrats, led by Rep. Steny Hoyer, D-MD, expressed strong opposition to the $2-billion cut, arguing that the IRS is a critical revenue-generating agency for the government. Hoyer emphasized the agency’s efficiency, stating it generates “between five and nine dollars in revenue for every dollar invested.” He further warns that the cuts could ultimately cost taxpayers “billions of dollars” due to decreased tax collection. Other Democrats echoed these concerns, suggesting that the proposed reductions may disproportionately benefit high-income earners. These concerns center on a provision that would limit funding for enforcement activities, potentially hindering efforts to ensure tax compliance among wealthy individuals.

The proposed budget also includes a rider that would prohibit the use of funds to develop and implement the IRS Direct File program. This free, electronic tax filing service was piloted in 12 states during 2024. House Appropriations Committee Ranking Member Rosa DeLauro, D-CT, has strongly criticized this provision, arguing that it would primarily benefit the private tax preparation industry. She emphasizes the program’s potential to streamline the tax filing process and eliminate the need for a “middleman” between taxpayers and the government.

Currently, Rep. Chuck Edwards, R-NC, is the only vocal Republican opposition to the proposed budget. His concerns focus on a provision that would restrict the use of funds to penalize financial institutions serving the cannabis industry. Edwards argues that federal limitations on financial services related to cannabis are justified due to its continued federal illegality.

The proposed budget presents a complex issue with various stakeholders and viewpoints. Political discourse will likely intensify as each party advocates for its preferred approach. The outcome will significantly impact both the private tax industry and the IRS.

McGuire Sponsel will continue to provide updates and insights as discussions progress.