How Changes in IRS Funding Impact the Deficit: A Closer Look
Introduction
Budget scorekeepers such as the Congressional Budget Office (CBO) follow a series of guidelines to ensure accurate cost estimates of proposed legislation. One of these guidelines, Guideline 14, creates an asymmetry in scoring proposals to change IRS funding levels. Any change, whether an increase or decrease in funding, is scored as an increase in the projected deficit. This article takes a closer look at the impact of changes in IRS funding on the deficit.
Decreasing IRS Funding is Projected to Increase Deficits
CBO recently scored legislation that would rescind $25 billion of IRS enforcement funding over 10 years. The agency projected that such a funding cut would lead to the loss of $49 billion in tax revenues. On net, CBO projected that cutting IRS funding by $25 billion would increase budget deficits by $24 billion.
| Year | Change in Outlays | Change in Revenues | Change in Deficit |
|---|---|---|---|
| 2024 | -814 | -1,578 | 764 |
| 2025 | -1,268 | -3,368 | 2,100 |
| 2026 | -1,830 | -4,718 | 2,888 |
| 2027 | -2,497 | -5,855 | 3,358 |
| 2028 | -3,337 | -6,802 | 3,465 |
| 2029 | -4,266 | -7,527 | 3,261 |
| 2030 | -5,420 | -7,823 | 2,403 |
| 2031 | -5,603 | -7,676 | 2,073 |
| 2032 | 0 | -2,143 | 2,143 |
| 2033 | 0 | -1,307 | 1,307 |
| 2024-2033 | -25,035 | -48,797 | 23,762 |
Increasing IRS Funding is also Projected to Increase Deficits
Increases in IRS funding for tax enforcement generally lead to increased tax revenues. However, under Guideline 14, those revenues are excluded from official scores. Almost $80 billion of additional funding was provided to the IRS, which CBO projected would add nearly $80 billion to the deficit over 10 years.
| Year | Change in Outlays | Change in Revenues | Change in Deficit |
|---|---|---|---|
| 2022 | 0 | 0 | 0 |
| 2023 | 3,823 | 0 | 3,823 |
| 2024 | 3,380 | 0 | 3,380 |
| 2025 | 4,970 | 0 | 4,970 |
| 2026 | 6,248 | 0 | 6,248 |
| 2027 | 7,996 | 0 | 7,996 |
| 2028 | 10,106 | 0 | 10,106 |
| 2029 | 12,617 | 0 | 12,617 |
| 2030 | 15,072 | 0 | 15,072 |
| 2031 | 15,388 | 0 | 15,388 |
| 2022-2031 | 79,600 | 0 | 79,600 |
However, CBO staff calculated that without Guideline 14, the IRS provision in the Inflation Reduction Act would have reduced the 10-year deficit by $101 billion. CBO estimated an increase in revenue of $180 billion, not including the IRS funding itself. Subtracting the IRS funding produced a net deficit reduction of $101 billion.
| Year | Change in Outlays | Change in Revenues | Change in Deficit |
|---|---|---|---|
| 2022 | 0 | 0 | 0 |
| 2023 | 3,823 | 2,012 | 1,811 |
| 2024 | 3,380 | 5,106 | -1,726 |
| 2025 | 4,970 | 11,125 | -6,155 |
| 2026 | 6,248 | 16,116 | -9,868 |
| 2027 | 7,996 | 21,716 | -13,720 |
| 2028 | 10,106 | 26,314 | -16,208 |
| 2029 | 12,617 | 31,218 | -18,601 |
| 2030 | 15,072 | 34,877 | -19,805 |
| 2031 | 15,388 | 31,904 | -16,516 |
| 2022-2031 | 79,600 | 180,388 | -100,788 |
Read More of this Story at budgetmodel.wharton.upenn.edu – 2023-11-01 19:44:48
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