The House of Representatives voted late Monday to rescind over $70 billion to the Internal Revenue Service (IRS) in the first bill under the 118th Congress. It now goes to the Democrat-controlled Senate, where it has little chance of progress amid additional opposition from the White House.
The Family and Small Business Taxpayer Protection Act passed on party lines with a 221-210 vote.
The bill, sponsored by Rep. Adrian Smith (R-Neb.) and Rep. Michelle Steel (R-Calif.), fulfills a key campaign promise by newly-elected House Speaker Kevin McCarthy (R-Calif.) and House Republicans. McCarthy had announced in September 2022 that the first bill would be to repeal new IRS funding.
“House Republicans just voted unanimously to repeal the Democrats’ army of 87,000 IRS agents,” McCarthy said in a statement late Monday. “This was our very first act of the new Congress, because government should work for you, not against you. Promises made. Promises kept.”
The funding to the IRS was part of the 2022 Inflation Reduction Act (IRA) that Democrat President Joe Biden signed into law in August 2022. A provision in the spending packing gives nearly $80 billion in funding to the tax agency over the next 10 years.
The latest bill pushed by Republicans would leave in place funding for customer service and IT service enhancements but would rescind funding used to carry out new audits on Americans and funding to increase the size of the IRS.
Rep. Don Bacon (R-Neb.) on Twitter commented on the bill, saying: “We need more customer service capabilities for the IRS, not four Army divisions (87,000) worth of auditors whose primary targets will be small businesses.”
But Vice President Kamala Harris (D-Calif.) opposed the bill and signaled that Biden would not support the measure.
“For decades, some of our nation’s wealthiest individuals and richest corporations have failed to pay what they owe in taxes. Last year, President Joe Biden and I worked with Democrats in Congress to finally make sure everyone pays their fair share to help fund our schools, hospitals, military, and other critical priorities,” Harris said in a statement posted by the White House.
“Now, as one of their first acts in the majority, House Republicans are rushing to undo that progress and allow too many millionaires, billionaires, and corporations to cheat the system.”
‘Squeezing Middle-Class Families’
Democrats say the IRS funding boost would improve customer service, update technology systems, and increase tax enforcement on larger companies. But Republicans argued the funds would be used to hire thousands of IRS agents to go after the middle-class and smaller businesses.
“Republicans are blocking the Biden Administration from unleashing 87,000 new IRS agents to go after families and small businesses and their unprecedented increase in IRS audits,” the Ways and Means House Committee said on Monday, adding that the bill “rescinds all new IRS funding for squeezing middle-class families and small businesses, while enhancing the services Americans expect to receive from their government.”
The committee warned: ” Democrats have long used the IRS and the tax code as a political weapon and will lead to more IRS abuses like those we’ve seen in the past: Targeting of Tea Party and conservative groups during the Obama Administration; Seeking a bank surveillance scheme on all American bank accounts; Massive leak of information to ProPublica used to support Democrat causes; Unleashing a dangerous new political weapon through the public release of the former President’s private tax returns.”
The Congressional Budget Office (CBO), a federal agency, estimated on Monday (pdf) the bill to rescind IRS funding would reduce the funding for the IRS by $71 billion, but would be projected to reduce tax revenue by $186 billion. It estimated the net deficit to be $114 billion over the next decade.
Meanwhile, the CBO said back in September 2022 that the IRS funding boost, as signed into law by Biden, would cause audit rates to “rise for all taxpayers,” but also noted that “higher-income taxpayers would face the largest increase.”
“Higher audit rates would probably also result in some audits of taxpayers who would later be determined not to owe additional taxes,” the CBO said.
“However, the [Biden] Administration’s proposal for more information reporting, as well as additional spending on IRS technology, might reduce the burden on compliant taxpayers by allowing the IRS to better target noncompliant ones and to reduce the number of audits that resulted in no change in tax assessment.”