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IRS Layoffs Threaten to Inject Chaos Into Tax Filing Season and Cost Taxpayers Billions

  • February 27, 2025
  • Ben Ritz
  • Alex Kilander

From our Budget Breakdown series highlighting problems in fiscal policy to inform the 2025 tax and budget debate.

The Trump administration is laying off thousands of employees at the Internal Revenue Service (IRS), just as tax season gets underway. These cuts will worsen customer service for millions of hardworking taxpayers as they try to comply with the law. And while the cuts make it harder for Americans to follow the law, it will empower those who break it, allowing tax cheats to continue avoiding paying their fair share.

Many of the 6,700 IRS staffers laid off were recent hires tasked with improving the agency’s poor responsiveness by answering phone calls, processing tax refunds, and assisting with filing. Cutting this staff at the beginning of tax season will reverse recent improvements at a time when households need the most tax help. And with even larger layoffs planned after tax season, the administration will set the stage for even more chaos in future tax seasons.             

The administration claims to be making these cuts in the name of improving government efficiency and reducing waste. However, it is actually more likely to increase budget deficits by undermining efforts to close the “tax gap” — the difference between what taxpayers owe and what the IRS actually collects.

There are two main causes of the tax gap: well-intentioned taxpayers misunderstanding their obligations, and malicious tax cheats actively working to evade their obligations. The Inflation Reduction Act included additional funding for customer service to assist the former and enforcement to crack down on the latter, which the nonpartisan Congressional Budget Office originally estimated would generate $180 billion in additional revenue over the next decade. These expected savings have already declined somewhat due to funding recissions, and laying off newly-hired auditors and customer support staff will go even further, potentially preventing the agency from realizing any savings at all. 

Like any large agency, there is clearly room for the IRS to improve, including by modernizing its outdated technology or simplifying a complex tax filing process. But rather than work to truly make the IRS more efficient to save taxpayers money, Trump’s layoffs instead cost the Treasury billions in foregone revenue and taxpayers millions of hours in compliance headaches. While this is great news for tax cheats seeking to evade their responsibilities, it will hurt the law-abiding American businesses and households who will be left to pick up the tab.  

Deeper Dive

  • IRS Layoffs Underway Around the Country as Millions Prepare to File Taxes, by ABC News
  • Will The Expected IRS Staff Cuts Delay My 2025 Tax Refund?, by CBS News
  • The ‘Madness’ of the Cuts at the I.R.S., by the New York Times
  • Call to Action: Crafting a New Taxpayer Service Experience, by Taxpayers First
  • Breaking Down the Federal Tax Gap, by the Bipartisan Policy Center

Fiscal Fact

The current U.S. Tariff schedule, which specifies the goods subject to tariffs and the rates they face, already has roughly 11,000 lines. Trump’s proposal to move to a reciprocal tariff system, where every imported good faces a tariff equal to the rate that the same American good would face if exported to its country of origin, would require an exponential expansion to at least 3.1 million lines. 

Further Reading

Other Fiscal News
  • What Can House Republicans Cut Instead of Medicaid? Not Much, by the New York Times
  • House Passes Budget Bill: Trump Touts ‘Big First Step’ For Mike Johnson, by Forbes
  • Trump Administration Seeks Deeper Cuts to Federal Workforce, by the Wall Street Journal
  • Johnson Open to Zeroing out the Cost of Extending Trump’s Tax Cuts, by Politico
More from PPI & The Center for Funding America’s Future
  • Republicans Reckon with the Costs of Their Tax Cuts, by Ben Ritz and Alex Kilander
  • Republican Budget Resolutions Would Massively Increase Deficits, by Ben Ritz and Alex Kilander
  • Child Opportunity Accounts Would Expand Opportunity and Financial Capability for American Children, by Alex Kilander
  • To Stop Trump, Democrats Must Reinvent Themselves, by Will Marshall
  • A Way Out of the DEI Wars, by Richard Kahlenberg
  • Five Pillars of Freedom: First Steps Toward a New Democratic Foreign Policy, by Peter Juul

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