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IRS Pot of Money Doubly Targeted by GOP

Posted on Nov. 2, 2023

The $79 billion in Inflation Reduction Act funding for the IRS — since reduced to about $58 billion — was targeted by Republicans in both chambers November 1. The effort in the Senate failed, while the one in the House is still playing out.

The Senate scotched on a 23-74 vote an effort to claw back $25 billion in enforcement dollars the IRS is getting from last year’s reconciliation bill, while Democrats voiced their outrage over a proposal from House Speaker Mike Johnson, R-La., to grab $14.3 billion of the IRA funds to balance the cost of emergency aid to Israel.

Senate Majority Leader Charles E. Schumer, D-N.Y., said he was baffled that Johnson pushed the IRS clawback as an offset to emergency funding when “every independent estimate” says it will add to the deficit. That includes a new Congressional Budget Office analysis that said the supposed pay-for would instead add $12.5 billion to the deficit because of decreased tax collections.

“The House GOP proposal is not going anywhere. It’s dead before it even is voted on,” Schumer said shortly after the Senate convened November 1.

Schumer’s comment followed a veto threat from the White House that warned that the clawback would set “a dangerous precedent by demanding partisan poison pill offsets in return for meeting core national security needs.”

Johnson’s reaction to the CBO score was to rephrase a longtime GOP complaint that federal government accounting views a reduction in the rate of a program’s growth as a spending cut.

“I’m not surprised at all,” Johnson said, according to a post on X, formerly known as Twitter. “Only in Washington when you cut spending do they call it an increase in the deficit.”

Senate Finance Committee member John Cornyn, R-Texas, was also unimpressed with the score from the nonpartisan CBO.

“That’s based on a fantasy—that taking $14 billion out of the $80 billion appropriation is somehow going to slow collections,” Cornyn told reporters November 1. “I don’t buy that. And if Democrats don’t like those offsets, then they need to come up with something else.”

To CBO or Not to CBO

The CBO analysis released November 1 found that rescinding the $14.3 billion in IRS funding from the IRA would decrease revenue for the IRS by $26.8 billion over 10 years, with a net addition of $12.5 billion to the deficit. When combined with the cost of the emergency aid to Israel included in the legislation, the price tag on the bill was estimated at $26.7 billion, according to the CBO.

The score was requested by Rep. Steny H. Hoyer, D-Md., the ranking member of the House Appropriations Subcommittee on Financial Services and General Government, and House Ways and Means Committee member Bradley Scott Schneider, D-Ill.

Meanwhile, Sen. Rand Paul, R-Ky., was loudly quoting another CBO projection in his arguments to rescind $25 billion in IRS funding from a minibus appropriations bill, which he described as a down payment on addressing the $33 trillion national debt.

“Unless we change course, the debt only increases. CBO predicts trillion-dollar deficits for as long as the eye can see,” Paul said.

Paul’s amendment was to the minibus of three Senate appropriations bills — Transportation, Housing and Urban Development (T-HUD), and Related Agencies; Agriculture, Rural Development, Food and Drug Administration, and Related Agencies; and Military Construction, Veterans Affairs, and Related Agencies.

Paul said his amendment would cut money allocated “to sic the IRS on taxpayers to squeeze them for even more money.”

But just after citing the CBO on the floor in support of his amendment, Paul railed against the office for its score on the Israel aid bill.

“It sounds like we ought to reevaluate a bunch of egghead economists who think that cutting money somehow doesn’t reduce the deficit. It’s just ridiculous,” Paul told Tax Notes. “They’re just wrong. Their assumptions are incorrect.”

Besides the $25 billion of enforcement funds it would have rescinded, Paul’s amendment would have revised wide swaths of the T-HUD and Agriculture appropriations bills in the package. Paul said the total cuts would have been $55 billion.

‘Told You So’

While Democrats haven’t done a sterling job at protecting the IRA funding, top Democratic taxwriters were quick to jump on Johnson’s attempt to pair IRS funding and aid to Israel.

Finance Committee Chair Ron Wyden, D-Ore., said House Republicans are using Israel emergency aid as a pawn to give a “big windfall to wealthy tax cheats” and called the proposal unconscionable.

“Remember, this was their first bill in Congress,” Wyden told reporters October 31, referring to the Family and Small Business Taxpayer Protection Act (H.R. 23), which passed the GOP-controlled House January 9.

“This was what the debt ceiling debate was, to a great extent. You can almost set your clock by it. These Republicans, particularly in the House, will use every and any opportunity to cut taxes for wealthy tax cheats, and that’s what they’re doing,” Wyden said.

Ways and Means ranking member Richard E. Neal, D-Mass., issued an unusually terse response to the CBO’s estimate that cutting IRS enforcement and operations dollars would raise the deficit.

“Told you so,” Neal said, harking back to his long-standing disagreement with committee Republicans on whether increased enforcement raises revenue or tax cuts pay for themselves.

The Paul and Johnson efforts are just the latest IRS-related actions by Republicans, several of which have been successful.

  • In the December 2022 omnibus spending bill, Republicans won a 2.2 percent cut in the IRS’s fiscal 2023 budget.

  • In January, on a party-line vote, House Republicans passed a bill that would claw back $71 billion of enforcement and operations support money among the IRA funds. The Senate ignored the bill.

  • In May President Biden and then-House Speaker Kevin McCarthy, R-Calif., agreed to a $1.39 billion rescission of the IRA funds as part of a debt-limit agreement. The deal included a side agreement to rescind $10 billion in IRA funding in fiscal 2024 appropriations and another $10 billion in fiscal 2025 appropriations.

  • In June House GOP appropriators announced they were going beyond the side agreement and would include $67 billion, rather than $10 billion, in IRA rescissions in fiscal 2024 appropriations bills. In July Senate appropriators voted unanimously for a single $10 billion rescission of IRA funds.

  • In September Paul introduced an amendment to claw back $25 billion in IRA funding, adding that he planned to introduce similar amendments so that Senate appropriations bills would mirror their House counterparts by including $67 billion in IRA funding rescissions.

While Paul’s effort was defeated, when the other cuts are added up — $67 billion in House appropriations bills, another $10 billion for fiscal 2025, $14.3 billion for the supplemental, a $1.4 billion rescission — and the $2.1 billion spent by the agency through August, it appears House Republicans have oversubscribed in their efforts to roll back the IRA funding.

The rush to use the pot of IRS money to pay for other proposals is reminiscent of the popularity in recent years to propose an extension of the $10,000 state and local tax deduction limitation beyond 2025 as a pay-for, and Democrats’ past preference for partially rolling back the Tax Cuts and Jobs Act’s 40 percent cut of the corporate income tax rate as a budget offset.

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