Recent polls show that when it comes to tax policy, Americans trust President Donald Trump and the Republican Party more than President Biden and the Democrats. But as with other major issues, Republicans are pursuing tax policies that are the polar opposite of what voters say they want.
In short, Republicans are trying to make it easier for corporations and the wealthy to avoid paying their taxes, while making it harder for honest working-class taxpayers to file their tax returns for free.
The vast majority of Americans believe the wealthy and corporations don't pay their fair share of taxes, a view that is somewhat at odds with Republican plans to further cut tax rates for these groups.
That's not the only thing Republicans want to do to reduce tax payments: They'll also defund the tax police, making it easier for the wealthy to rip off the American government.
This week, House Republicans introduced a financial services spending bill that would cut the Internal Revenue Service's fiscal year 2025 budget by more than $2 billion, or about 18% from current levels, as part of a much longer-term plan to cripple the agency and prevent it from collecting taxes that are lawfully owed.
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In fact, if the 2025 budget proposal were adjusted for inflation, the IRS budget would be 43 percent smaller since Republicans began fighting the IRS in 2010. This is despite the fact that the IRS's responsibilities have become more complex and expensive. During that time, the IRS has been busy enforcing foreign account tax compliance laws, fighting identity theft, and administering a variety of safety net programs. Not surprisingly, other resource-intensive priorities, like auditing giant corporations and billionaires, have been pushed to the back burner.
House Republicans argue that the IRS still has plenty of room for maneuver because Democrats' Inflation Control Act of 2022 gave the agency an additional $80 billion to be spent over 10 years. But there are two problems with that argument.
First, Republicans in Congress are already cutting back on that investment: As part of last year's debt ceiling deal, Republicans demanded the withdrawal of a quarter of those funds ($20 billion).
Second, that $80 billion (now reduced to $60 billion) was intended for long-term investments separate from the agency's annual operations.
For example, the money was intended to move the IRS's IT out of the disco era. It was also designed to improve the IRS' enforcement capabilities, particularly for high-net-worth individuals and corporations with complex tax returns and armies of accountants. For example, these taxpayers could hide income inside nesting dolls of partnership returns. The IRS rarely audited these returns because it lacked the necessary resources and expertise.
Enforcement payoffs are easier to come by: At least 25,000 billionaires haven't filed any tax returns since 2017, and the IRS only recently began going after these households. The agency also recently began auditing companies for misuse of corporate jets.
Cutting the IRS’s annual enforcement budget and forcing the IRS to divert funds from long-term investments, as House Republicans explicitly do in this bill, costs the government a lot of money. Because IRS enforcement spending has a big return on investment, especially when the money is spent on auditing the wealthy. In fiscal year 2023, enforcement programs collected about $7 for every dollar spent. And as a major study last year found, the long-term deterrent effect of audits is even greater.
In other words, defunding the IRS would not only allow existing fraud and noncompliance to go undetected, it would lead to more fraud and noncompliance and lost tax revenue. For anyone interested in reducing the federal deficit, as Republican politicians (and voters) often claim, this is an unfortunate outcome.
Then there is the taxpayer service aspect.
This year, the IRS piloted the Direct File program, which allows Americans to file their federal tax returns online, directly with the IRS, for free, without going through a third party like TurboTax.
The pilot program was limited to fast-file taxpayers in just 12 states. Last week, officials announced they would make the program permanent and expand its availability nationwide if states wanted to participate. The expansion would be popular: A new YouGov poll found that 73 percent of Americans support rolling out such a program nationwide, including 61 percent of Republicans. That's not surprising, considering the average American spends $270 and 13 hours filing their taxes.
The Republican response? Again, the exact opposite of what voters want.
Thirteen Republican-led states have signaled their refusal to cooperate with the program, and in the new spending bill I mentioned, Republicans inserted language that would prohibit the IRS from using federal funds to “develop or provide any public electronic filing service option free of charge to taxpayers,” which, of course, would eliminate Direct File entirely.
As always, I implore voters: Before you vote, think about what your politicians will actually do on the issues you care about.
