The IRS is about to run out of key funding and Trump plans more cuts. It could add $140 billion to the national deficit

Hoping to unlock the funds in upcoming budget negotiations, Treasury officials are rushing for action before President Joe Biden’s term ends.

The $20 billion in question is separate from another $20 billion rescinded from the agency last year. However, the legislative mechanism keeping the government afloat inadvertently duplicated the one-time cut.

Treasury officials warn of dire consequences if the funding is effectively rescinded through inaction. The loss of that money would lead to an increase of the national deficit by $140 billion, Treasury Deputy Secretary Wally Adeyemo said on a call to reporters on Tuesday. There would be 6,000 fewer audits of wealthy individuals and 2,000 fewer audits of large corporations, and the agency would have to go on a hiring freeze, he said.

“The IRS is going to potentially have to make dramatic decisions about stopping hiring and starting to budget for a world which they don’t have $20 billion which will stop a lot of their progress,” Adeyemo said. ”If they don’t get that $20 billion that is at risk they would run out of enforcement money at the current pace sometime in fiscal year 2025.”

Adeyemo was joined by Maya MacGuineas, president of Committee for a Responsible Federal Budget, who also issued a warning about the ramifications of overall spending cuts to the IRS, and how pulling back agency enforcement funding could negatively impact the federal deficit.

The federal debt stands at roughly $36 trillion, and the spike in inflation after the coronavirus pandemic has pushed up the government’s borrowing costs such that debt service next year will exceed spending on national security.

“Given the fiscal situation we deeply hope there is no backsliding in the coming months and years with rescinding, diverting, repealing any of the revenue that is going effectively into the IRS to help with tax collection,” MacGuineas said.

The federal tax collection agency originally received an $80 billion infusion of funds under the Democrats’ Inflation Reduction Act though that money has already been clawed back. A 2023 debt ceiling and budget-cuts deal between Republicans and the White House resulted in $1.4 billion rescinded from the agency and a separate agreement to take $20 billion from the IRS over the next two years and divert those funds to other nondefense programs.

The news also comes as President-elect Donald Trump and a Republican majority sweep of the Senate and House of Representatives promise major policy changes for the White House and Congress.

While Trump has spoken at length about his proposed tax plans, he has not spoken as much about the agency in charge of administering tax policy or explicitly said he would cut the IRS’ budget. He has, however, repeated a debunked claim that the IRS has hired 87,000 armed enforcement agents to pursue taxpayers.

Congressional Republicans, meanwhile, have threatened to take back the tax collection agency’s modernization funding and have vowed to cut the IRS’ Direct File program.