IRS cuts cost much more than they save, further growing the deficit, experts say

Local governments and nonprofits in Wisconsin could suffer if federal revenue shrinks.

By Annie Pulley, THE BADGER PROJECT

The Department of Government Efficiency, or DOGE, headed by the now-departed Elon Musk, said its aim was to save money. But cutting the workforce of the Internal Revenue Service, which enforces tax law and collects nearly all of the federal government’s revenue, means that the reductions will actually end up costing the government much more than they save, experts say.

About 11,000 employees have left the IRS, according to a May report from the independent Treasury Inspector General for Tax Administration. Thousands more could leave the IRS through additional staffing cuts, and the White House has floated cutting the agency by half, according to news reports.

If the IRS workforce is reduced by 50%, the nonpartisan Yale Budget Lab projects that lost revenues could amount to $395 billion over a 10-year period. Cuts could also increase the number of noncompliant taxpayers such that lost revenue could climb into the trillions, the lab estimates.

“There are very real impacts on people’s lives when decisions like these are made,” said David Helpap, a political science professor at UW-Green Bay. 

Cities like Madison and Milwaukee and many nonprofits in the state receive federal money. If top-level agencies continue to see cuts, and if federal revenues decrease, “that’s going to create some real challenges” for communities across the state, Helpap said.

More than 3,600 people who separated from the agency were revenue agents, meaning the IRS’s ability to enforce tax law could take a hit, according to the IRS oversight report. 

For folks with a normal 9-to-5 job, taxes are automatically subtracted from their paychecks. But for large corporations and wealthy individuals who have money coming from and sitting in different places, tax enforcement becomes more complicated. That’s mainly where revenue agents are needed, experts say.

Top-tier earners are believed to be responsible for $205 billion or 30% of unpaid taxes annually, according to the report from the Yale research center.

“Without close oversight, there is a lot of money that sort of gets left out there,” Helpap said. “So would there be inequality in enforcement? Yeah, absolutely.” 

The cuts have “no modern equivalent,” the Yale Budget Lab wrote. They hit every part of the country, including about 10% of Wisconsin’s IRS workforce, according to the report from the IRS’s oversight group. 

If the federal government’s tax collector gets worse at its job, the State of Wisconsin could also be in trouble, according to Helpap. 

“Wisconsin as a state gets tens of billions of dollars in federal aid every year,” Helpap said.

Gov. Tony Evers’ proposed budget, which is being overhauled by legislative Republicans, includes $18 billion a year in federal funds.

Though Democrats in the Wisconsin Legislature have proposed a fail-safe if federal dollars are called into question, their bill has not been advanced by the Republicans in the majority. 

“It’s sort of up to the Republican legislature to address it,” Helpap said. Responding to federal funding uncertainty with a divided state government becomes a “partisan puzzle.”

The Badger Project is a nonpartisan, citizen-supported journalism nonprofit in Wisconsin.