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GOP Buries IRS Spending Cuts in Offbeat Spending Bills

Posted on Aug. 9, 2023

The $21.4 billion in IRS cuts over two years that President Biden agreed to in May would turn into a one-year cut of $67 billion, according to an analysis of spending bills released by House Appropriations Committee Republicans.

Those cuts are integral in a standoff between Senate appropriators, who are sticking to the $1.59 trillion discretionary spending limit in the debt ceiling deal, and House appropriators, who have recast the deal’s limits to $1.47 trillion. House appropriators would hit that mark through $115 billion in rescissions, government parlance for cuts. Nearly 60 percent of those cuts would come from clawing back a large majority of the special funding the IRS got in the Inflation Reduction Act (IRA, P.L. 117-169) and redistributing the monies to four spending bills.

A total of $56.8 billion of those cuts are in obscure places — a provision on the fifth-to-last page of the 197-page Transportation-Housing and Urban Development (T-HUD) bill would cut $25 billion from the special funding the IRS got; a pair of IRS cuts in the Commerce-Justice-Science (C-J-S) spending bill total $22 billion; and a similarly buried cut of $9.8 billion is on the fourth-to-last page of the Labor-Health and Human Services (Labor-HHS) spending bill.

Another $10.2 billion in enforcement and operations support cuts are in a more expected place: the Financial Services and General Government (FSGG) spending bill, the normal home for IRS budgets. Adding a $1.4 billion cut to enforcement from May’s debt ceiling agreement between Biden and House Speaker Kevin McCarthy, R-Calif., brings total cuts to $68.4 billion for fiscal 2024 alone.

“They contemplated it to be $10 billion, not $67 billion,” complained a House Appropriations Committee Democratic staffer, referring to the advertised impact on the IRS for fiscal 2024 from the McCarthy-Biden deal. “T-HUD, C-J-S and Labor-HHS have nothing to do with the IRS,” said the staffer, speaking on condition of anonymity.

But the IRS cuts do have something to do with Republicans hitting their announced targets for those three bills, the staffer said. Besides the T-HUD example, consider what the IRS cut means for the C-J-S bill. Thanks to the $22 billion proposed to be clawed back from the IRS, the C-J-S budget comes in at $58.4 billion, 28 percent less than the enacted budget for fiscal 2023. Without the IRS dollars, the result would have been a far less impressive 2 percent reduction.

Spokespeople for House Appropriations Committee Republicans didn’t respond to requests for comment. Neither did the Treasury Department.

“Taken together, the House appropriations proposals would derail the IRS’s already-underway efforts” to modernize and expand its enforcement, according to a blog by Chye-Ching Huang and Thalia Spinrad of the New York University Tax Law Center.

Between the $68.4 billion in cuts in the House appropriations bills, the $2.9 billion in spending the IRS has already undertaken, and the further $10 billion cut for fiscal 2025 in the Biden-McCarthy deal, the total appears to completely consume the $79.4 billion allocated to the agency. Republicans may have even breached the limit and “oversubscribed” the cuts, the Democratic staffer said.

Quiet Cuts

The first time House Republicans went after the IRS’s special funding was in their first bill of the new Congress, the Family and Small Business Taxpayer Protection Act (H.R. 23). The legislation had been promoted for months, and its proposed $71.5 billion clawback was highlighted at news conferences and in floor speeches.

But the cuts excluded $3.2 billion that the IRA allocated to the IRS’s taxpayer services function as the agency entered a new tax season primed to improve on its abysmal telephone answering stats from the previous one. Also left alone by House Republicans was $4.8 billion for business systems modernization, an account reserved for replacing the agency’s antiquated information technology systems. Enforcement and operations support accounted for $71 billion of the proposed clawbacks.

The bill passed the House, but considering Biden’s veto threat, it’s no surprise that it was ignored by the Democrat-controlled Senate.

Then, in May, McCarthy crowed about a $21.4 billion clawback of IRS funds in a debt limit deal with Biden. The White House confirmed the particulars but was otherwise quiet about the backsliding on the special IRS funding, except to note that the money wouldn’t have been needed until 2030, per the IRS’s strategic operating plan for spending the funds. The debt agreement included an immediate $1.4 billion cut to IRA enforcement dollars and a side agreement between the speaker and president to cut $10 billion in both fiscal 2024 and fiscal 2025.

The newest effort hasn’t been hidden, but it hasn’t been ballyhooed, either. The cuts are made in brief provisions that mention neither the IRS nor the IRA, instead accomplishing their task by referring to particular subsections of section 10301 of Public Law 117-169, which is the IRS funding section in the IRA. The cuts in the four bills amount to just 137 words in 757 pages of legislative text.

The cuts aren’t even mentioned in releases for the Labor-HHS and C-J-S bills. The IRS clawback was featured, though, in the release for the financial services spending bill, the IRS’s budgetary home, which tallied a 58 percent budget cut. The rescinded IRS funds were diverted from plans “for a supercharged army of 85,000 IRS agents and their associated payroll systems,” the release said.

Monkeying Around

There are three basic parts to the federal budget: discretionary spending, which is set by annual appropriations acts; mandatory spending, such as for Medicare or Social Security, which is set by law and varies based on eligibility and use; and net interest.

While Congress publicly frets over annual appropriations bills, an explosion in mandatory spending is what is blowing up the deficit. Between 2012 and 2022, mandatory spending grew 105 percent compared with discretionary’s 30 percent.

There’s a little trick that appropriators use to make the growth in tightly controlled discretionary funding appear less than what it is. They declare that a change in a mandatory program will result in savings and apply those savings to the discretionary budget. Both parties have made use of those changes in mandatory spending, or CHIMPs. Sometimes they’re called legitimate budget maneuvers — other times, gimmicks.

The IRS CHIMPs are central to what is going on in this year’s appropriations battle. The special $79.4 billion for the IRS is a mandatory expenditure inserted into a tax bill (the IRA) circumventing the annual appropriations process. House Republicans are unwinding this funding and declaring $67 billion in savings to be applied in four discretionary bills.

Besides the T-HUD and C-J-S examples, the Labor-HHS bill got a boost from the $9.8 billion IRS rescission it was allocated. The bill totaled $147 billion rather than the $157 billion it would have measured if not for the transfer.

The FSGG bill got the biggest boost of all, coming in at 58 percent lower than the enacted fiscal 2023 budget. The cut, though, would have been just 7 percent if not for $10.2 billion from the IRS mandatory account and another nearly $4 billion clawback of funds from IRA environmental provisions.

Senate Democrats have declared the clawback effort dead on arrival in their chamber even though the Senate went along with the $21.4 billion IRS cut in the debt deal as well as a 2 percent fiscal 2023 budget cut for the agency.

If the House does fold and the Senate holds the line, followers of the IRS budget might want to get ready for annual attempts to claw back the IRS funds. They would be eligible for use as CHIMPs until the IRS spends the last of the funds, now targeted for 2029.

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