The Internal Revenue Service (IRS) has begun laying off around 7,000 probationary employees, a move that experts warn could significantly weaken tax enforcement and undermine efforts to pursue high-wealth tax dodgers. The majority of those affected were recently hired to improve compliance, raising concerns about the government’s ability to collect revenue efficiently.
The layoffs come amid a broader effort by the Department of Government Efficiency, led by Trump adviser Elon Musk, to reduce the federal workforce. With tax season underway and the filing deadline approaching, critics argue that cutting enforcement staff at this critical time may hinder efforts to ensure tax compliance and timely refund processing.
Compliance and Enforcement Under Threat
The mass layoffs primarily affect IRS employees responsible for tax enforcement, which includes auditing high-income earners and businesses. According to Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, the job cuts will “disproportionately harm enforcement efforts” by limiting the agency’s ability to pursue wealthy individuals and corporations using legal loopholes to evade taxes.
The IRS had previously been granted $80 billion in funding under the Inflation Reduction Act of 2022, with plans to strengthen compliance and customer service. However, subsequent budget reductions have scaled back these initiatives.
Former IRS Commissioner Daniel Werfel prioritised cracking down on high-income tax avoidance, particularly among executives misusing corporate aircraft and individuals seeking preferential tax treatment in Puerto Rico. The recent staff cuts could derail these enforcement efforts.
A Congressional Budget Office (CBO) report highlighted the financial consequences of reducing IRS funding. According to the CBO, a $5 billion budget reduction could decrease revenue by $5.2 billion over the next decade, while a $35 billion rescission could lead to an $89 billion revenue shortfall.
Critics argue that such cuts could exacerbate budget deficits rather than alleviate them.
Impact on Taxpayers and Federal Revenue
The layoffs are expected to strain IRS resources during tax season, potentially causing delays in processing tax returns and issuing refunds.
According to Doreen Greenwald, president of the National Treasury Employees Union, “In the middle of a tax filing season, when taxpayers expect prompt customer service and smooth processing of their tax returns, the administration has chosen to decimate the whole operation.”
The cuts could also reduce audit activity, weakening deterrents against tax evasion. Mark Mazur, former assistant secretary for tax policy at the Treasury Department, noted that IRS employees handling large corporate enforcement cases may now be reassigned to smaller, less complex cases.
“For sure this means less enforcement activity,” Mazur said, adding that the deterrence effect of audits will be diminished.
The debate over IRS funding is closely tied to broader discussions on fiscal policy. Treasury Secretary Scott Bessent has argued that the government’s primary challenge is overspending rather than revenue collection.
Meanwhile, congressional Republicans are exploring ways to offset the cost of extending the Trump-era Tax Cuts and Jobs Act, which the Penn Wharton Budget Model estimates could increase the deficit by $4 trillion over the next decade.
