Yellen to defend IRS in Tuesday speech, say Republican-proposed cuts would be ‘damaging’

Treasury Secretary Janet Yellen is expected to defend the Internal Revenue Service in a speech Tuesday against repeated threats from Republicans to cut the agency’s funding.

“Playing politics with IRS funding is unacceptable. Cutting it would be damaging and irresponsible,” Yellen will say, according to prepared remarks.

The IRS was allocated an influx of $80 billion by the Democrats’ Inflation Reduction Act, which passed last year. The funds are intended to help crack down on tax cheats and improve taxpayer service.

But the funding has become politically controversial.

Most recently, House Republicans voted to rescind $14.3 billion from the IRS to pay for an emergency aid package for Israel in the wake of the Hamas terrorist attacks, but the bill is unlikely to even get brought up for a vote in the Democrat-controlled Senate.

Newly minted House Speaker Mike Johnson said the IRS cuts would offset the spending for Israel, but independent budget experts have repeatedly said that taking money away from the IRS’ enforcement actions will actually add to the deficit. In fact, the nonpartisan Congressional Budget Office said last week that cutting $14.3 billion from the IRS would reduce the amount of tax revenue the agency can collect by $26.8 billion over 10 years.

The House GOP has made several efforts to claw back some IRS funds since taking control of the chamber in January, and some representatives have even called for abolishing the IRS altogether. Earlier this year, Republicans were successful in rescinding $20 billion from the IRS as part of a deal to address the debt ceiling.

Many Republicans claim the IRS will use the money to hound middle-class taxpayers and small business owners, though the Biden administration has said that taxpayers earning less than $400,000 a year won’t face an increase in taxes due to the new funding.

The Biden administration is eager to show how the new funding is helping the IRS improve its taxpayer services and ramp up enforcement efforts.

During the 2023 filing season, the IRS was able to answer 3 million more calls and cut phone wait times to three minutes from 28 minutes compared with the year before after hiring 5,000 new customer service representatives. And by ramping up enforcement on millionaires this year, the IRS has collected $160 million in back taxes.

The IRS has also already met its goal, set earlier this year, to make sure taxpayers can respond to all IRS correspondence online. Previously, there were certain forms that could only be submitted on paper through the mail. As a result of this change, the IRS estimates more than 94% of individual taxpayers will no longer have to send mail to the agency.

The IRS has also put a plan in motion to digitize all paper-filed tax returns by 2025. The move is expected to cut processing times in half and speed up refunds by four weeks.

There are more improvements the IRS expects to roll out next year.

For example, the existing online tool known as “Where’s My Refund?” will be able to give taxpayers more detailed information about the status of their refund after filing their federal tax return, including whether the IRS needs them to respond to a letter requesting additional information.

The IRS is also expecting to provide more in-person tax filing support at its Taxpayer Assistance Centers. Taxpayers can go to those sites to receive free help from trained volunteers. The agency’s goal is to increase the number of taxpayers receiving free tax preparation help by around 50,000 in filing season 2024.

The IRS is currently working on building its own free tax filing program, known as Direct File, that will launch as a limited pilot program next year and be available to some taxpayers in 13 states.