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Democratic-Led Senate Opposes Any Further Cuts To IRS Funding

Democratic-Led Senate Opposes Any Further Cuts To IRS Funding

According to Law360House Republicans passed legislation to rescind $14.3 billion in IRS funding to pay for an aid package for Israel, but resistance in the Democratic-led Senate and public support for the agency's recent changes will likely insulate the agency from the latest attempt to cut its funding.

The Israel Security Supplemental Appropriations Act, which the House passed 226-196 on Thursday, would rescind unobligated funding that the Inflation Reduction Act provided to the Internal Revenue Service for enforcement and operations support. It would also claw back funding for the agency's task force that is designing an IRS-run free electronic tax return filing system, which the agency has said will launch in the 2024 filing season.

  • The IRS already has seen $21.4 billion of the Inflation Reduction Act's original $80 billion funding boost clawed back under the Fiscal Responsibility Act
  • While $1.4 billion was immediately rescinded, President Joe Biden and then-House Speaker Kevin McCarthy, R-Calif., also agreed to cut $10 billion of the agency's funding in each of the 2024 and 2025 fiscal years.

While newly elected House Speaker Mike Johnson, R-La., has said he's hopeful the bill will get Democrats' votes, Senate Majority Leader Chuck Schumer, D-N.Y., has said lawmakers in his chamber will work on their own emergency aid bill for Israel that will also include aid for Ukraine and humanitarian aid for Gaza. 

The White House has said the House proposal departs from the bipartisan approach Congress consistently takes to provide emergency national security assistance and Biden will veto the bill if it is sent to him. Even some Senate Republicans have said they'd be open to an alternative way to pay for aid to Israel.

Congressional Observers Say It Is Unlikely Biden And
The Senate Will Agree To Such A Large Additional Cut
To The IRS' Funding After Making This Summer's
Deal To Claw Back Funding In The Future.

"I am strongly against what the House is doing," Cardin said.

Finance Committee Chairman Ron Wyden, D-Ore., told Law360 there's no way he'll support the proposed funding cuts."It's a terrible idea," Wyden said, adding that the plan would make the government lose out on revenue. He pointed to the Congressional Budget Office's outlook that the House Israel aid proposal would decrease federal revenue by $26.8 billion and increase the deficit by $12.5 billion over the next decade because it would impede the IRS' ability to undertake enforcement actions.

For their part, some Senate Republicans said they were open to alternatives for funding an aid bill that wouldn't pull money out of the IRS' accounts.

Public support for the agency's progress, especially its improved customer service since the Inflation Reduction Act's passage, could also bolster the IRS' argument that further funding cuts would be counterproductive.

The agency also said recently that it collected $122 million in back taxes from 100 high-income, high-wealth individuals in its effort to ramp up enforcement against people with more than $1 million in income who haven't filed taxes and those who have failed to pay more than $250,000 in tax debt. According to polling conducted by Hart Research Associates on behalf of Groundwork Action, 75% of voters want Congress to crack down on wealthy individuals and corporations who don't pay the taxes they owe.

Biden Is Likely To Feel Some Political Pressure When It Comes To Whether To Claw Back More Of The Agency's Funding, Especially From Congressional Observers Who Were Disappointed By The President's Agreement To Claw Back
A Portion Of It Earlier This Year.

"It's critically important [that] this president who, in the depths of the negotiation, agreed to rescind $20 billion from the IRS funding ... doesn't give a penny more in IRS funds," Volsky said, adding that Biden has been vocal about the importance of closing the country's wealth gap. Americans expect Biden and progressive members of Congress to "fight Republican efforts to empower wealthy tax cheats to dodge their tax obligations," he said.

The previous clawback makes it essential for Democrats to protect the agency's remaining funding, Hughes said, adding that Congress shouldn't be using the funding boost as a piggy bank. If Democrats acquiesce to House Republicans' demands, they'll set a precedent that could eventually wipe out the agency's entire funding boost, he said.

"Democrats sort of regrettably accepted that $20 billion in cuts to avoid a debt default earlier in the year, and then Republicans immediately backtracked on their agreement," Hughes said. "Now, they want more and more cuts, and it's just pretty clear how this is going to go. If they keep accepting more and more cuts, eventually there's going to be nothing left."

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