Despite Mike Johnson’s claim, some spending cuts can increase deficits

Pending legislation for an emergency aid package to Israel includes a Republican provision that has become a source of contention: stripping $14.3 billion in funding from the Internal Revenue Service. 

Republicans, including newly elected House Speaker Mike Johnson, R-La., have hoped those savings would offset the aid to Israel, preventing any additions to the federal deficit.

But the Congressional Budget Office, Congress’ nonpartisan number-crunching arm, disagreed, saying that cutting IRS funding would actually increase the deficit by $12.5 billion because reducing enforcement would, in turn, reduce revenue collections.  

Johnson decried this logic during a Nov. 5 appearance on "Fox News Sunday."

"Look, only in Washington can you cut funding, add a pay-for to a new spending measure, and they say it's terrible for the deficit," he said.

However, CBO has long used this method, and budget experts say it’s logical.

CBO’s approach "may be counterintuitive, but it’s not weird," said Marc Goldwein, senior vice president of the Committee for a Responsible Federal Budget, a think tank that tracks federal budget policy. "Talk to any business — sometimes when you cut spending, it costs money, because you’re cutting from something that makes them money. And administering the tax code makes the U.S. money."

Johnson’s office did not respond to an inquiry for this article. 

A few weeks after the Oct. 7 Hamas attacks in Israel, the House Republican majority introduced the Israel Security Supplemental Appropriations Act, which would provide $14.3 billion for military assistance to Israel and for the return of American citizens in the region.

The bill passed on a largely party-line vote of 226-196. 

Most Democrats voted against it because they wanted to pass the Israel aid alongside military assistance for Ukraine. They also opposed the provision to strip the IRS of funding. 

The IRS funding was part of $80 billion allocated for the agency to spend over 10 years. It was originally included in the Inflation Reduction Act, a bill signed by President Joe Biden in 2022 after being passed with only Democratic votes in the House and Senate.

Backers of the Inflation Reduction Act said much of that money was intended to fill positions over the next decade after expected retirements among existing IRS staff. Analyses have shown that more than half the agency’s workforce is nearing retirement.

An April 2023 IRS report said through the end of 2024, the IRS planned to fill roughly 20,000 positions, including customer service representatives, information technology experts and accountants. 

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Of those, about 7,000 new hires would focus on enforcement, and the report said that most of that enforcement would be targeted at wealthy taxpayers and big corporations, to forestall noncompliance that drains the Treasury of expected tax dollars. 

Republican critics of the 2022 IRS funding boost have argued that middle-income Americans would face a higher audit risk. However, top Treasury and IRS officials consistently confirmed that the new resources allocated to the IRS will be focused on audits of the highest-paying Americans. 

Treasury Secretary Janet Yellen has said auditing corporations and people with high net worth requires staff with specialized skills. Before the funding boost, she said, the agency was able to audit only about 7,500 out of 4 million such returns annually.

For the Israel aid bill, CBO — widely considered the gold standard for such calculations — concluded that rescinding the $14.3 billion from the IRS budget would decrease enforcement actions over the next decade and reduce revenue by $26.8 billion between 2024 and 2033. 

With IRS funding reduced by $14.3 billion under the bill, but with IRS revenues projected to decrease by $26.8 billion, the net increase in the federal deficit, according to CBO, would be $12.5 billion.

"CBO’s estimate makes great sense," said Paul N. Van de Water, a senior fellow at the Center on Budget and Policy Priorities, a liberal think tank. "Although the estimates are uncertain, it’s logical that revenues will shrink if the IRS has less funding and fewer staff to enforce tax laws."

This is not the first time the CBO has made a similar calculation. The Democratic majority on the Senate Budget Committee released a memo Oct. 31 that cited four prior examples in 2023 in which the CBO rated a spending cut as increasing the deficit, all relating to proposed IRS cuts.

Goldwein said this phenomenon is relatively rare, but not unprecedented. He recalled examples of cuts to anti-fraud enforcement budgets of other agencies such as the Social Security Administration being projected by the CBO to cost the government money.

"Cutting IRS funding for savings is short-sighted and costs taxpayers in the end," said Steve Ellis, president of another budget-focused group, Taxpayers for Common Sense. 

Johnson said, "Only in Washington can you cut funding, add a pay-for to a new spending measure, and they say it's terrible for the deficit." .

The cuts Johnson references would be to the IRS’ enforcement budget, and the "pay-for" refers to cutting $14.3 billion on IRS spending to offset the $14.3 billion in aid to Israel.

However, CBO’s longstanding practice has been to classify enforcement cuts as reducing revenue, which increases the deficit. The CBO projected that rescinding $14.3 billion from the IRS would decrease enforcement actions over the next decade and reduce revenue by $26.8 billion by 2033. 

With IRS funding reduced by $14.3 billion, but with IRS revenues projected to decrease by $26.8 billion, the net increase in the federal deficit would be $12.5 billion.

It’s also common for businesses to use the same methods when they cut expenditures on areas that generate revenue, experts said.

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