It’s not unreasonable for the newly elected Republican House Speaker, Mike Johnson, to propose offsetting $14 billion in aid for Israel by making cuts elsewhere in the government’s $6 trillion budget. The Congressional Budget Office (CBO) has provided a list of potential options for cutting federal spending or increasing revenue. However, instead of choosing any of these options, Johnson introduced a bill that would cut funding for the Internal Revenue Service (IRS) by the same amount as the aid provided to Israel.
This idea is both cynical and counterproductive. Cutting the IRS budget would actually end up costing money, as a reduction in resources would make it more difficult for the agency to catch wealthy tax evaders who are not paying their fair share. The CBO analyzed Johnson’s bill and determined that cutting the IRS budget by $14.3 billion would result in a net cost to taxpayers of $12.5 billion, as federal revenue would be reduced by $26.8 billion. In essence, Johnson wants to “pay for” the aid to Israel by using a tactic that would nearly double the cost of the aid itself.
The bill passed in the House but has little chance of passing in the Senate, where Democrats hold control. Democrats had previously added funding for the IRS, and they are unlikely to go back on that decision. Additionally, some Senate Republicans have objections to the bill because it does not include additional aid for Ukraine and Taiwan, which have bipartisan support in both chambers. Ultimately, the House bill is more of a symbolic gesture of weakness from the Republicans who voted for it.
The endorsement of tax evasion by the Republican Party is a misguided and outdated policy that needs to be addressed. For over a decade leading up to 2022, Republicans allowed the tax-cheat lobby to influence decisions to cut funding for the IRS. This resulted in a lack of resources, including computer upgrades and specialists, which hindered the agency’s ability to go after tax evaders who employed high-powered lawyers and accountants to hide their wealth. From 2010 to 2022, audit rates for the wealthiest Americans dropped by 64% and for the largest corporations by 50%.
Ordinary workers, whose income is reported by their employers, generally cannot cheat on their taxes. When employers report income to the government, there is little room for argument about how much tax is owed. While some people may try to claim questionable deductions, overall, there is relatively little tax evasion among those whose taxes are automatically deducted by their employers.
The majority of tax evasion occurs among individuals who receive significant investment income from business ownership or other assets. In these cases, income is not as easily reported to the government, and taxes are not automatically withheld. This creates an opportunity for these individuals to underreport their income, claim excessive deductions, or even avoid filing taxes altogether.
The tax gap, which is the amount owed to the US government but not paid, could range anywhere from $280 billion to a staggering $1 trillion per year. At the higher end, this amount could fund the entire Defense Department with over $100 billion to spare. While it is unlikely that the IRS will ever be able to collect every dollar owed, with modern technology and skilled personnel, they could significantly increase collection efforts. Last year, Democrats allocated an additional $80 billion in funding to the IRS over a decade, resulting in a 60% increase over its 2022 budget.
The CBO estimates that this additional funding could generate around $180 billion in additional tax revenue, mainly through improved enforcement. Ultimately, this would result in $100 billion in revenue above costs, reducing the overall deficit. However, Republicans have been quick to oppose this funding, as they believe that wealthy Americans should not be held accountable for their tax obligations. In fact, the recent debt-ceiling deal included a $1.4 billion cut to IRS funding, which, as expected, would lead to a loss in revenue for the government.
While Johnson’s latest attempt to push through a tax cheating scheme will likely fail, it is important to recognize that Republicans will continue to pursue this issue. Another tactic they adopt is spreading the false narrative that the IRS will only target small-time workers while allowing big fish to escape. If Democrats, who supported strengthening the IRS, are foolish enough to allow this to happen, then they deserve to lose to the tax-cheat-industrial-complex.
It is reasonable to have a constructive debate about the appropriate level of taxation in the United States. Excessive taxes can hinder economic growth, while inadequate taxes can leave society’s needs unmet. It is also important to discuss who should bear the tax burden and what should be taxed, be it income, wealth, consumption, or other factors. However, once a tax code is in place, it is nihilistic to deliberately undermine its enforcement. If the argument is that taxation should be eliminated entirely, then it is not a call for limited government but rather anarchy. Similarly, if the tax code is only enforced against the most vulnerable, it sets a dangerous precedent for a corrupt and unstable society.
Johnson and the group of Republicans supporting him are essentially advocating for increased deficits and a loss of confidence in the tax system at a time when the nation’s financial situation is already causing harm to everyday Americans. The national debt has reached a staggering $33 trillion, and the financial markets are signaling that they cannot sustain the excessive debt flooding the market. As a result, interest rates on mortgages, car loans, and other consumer loans are on the rise. It is crucial for someone in Washington to take this matter seriously, but unfortunately, it seems that Republicans are not up to the task.
Rick Newman is a senior columnist for Yahoo Finance. You can follow him on Twitter at @rickjnewman. For more political news related to business and money, click here. Stay updated with the latest financial and business news from Yahoo Finance.
