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-Editorial
As tax season concludes, the Internal Revenue Service (IRS) is bracing for sweeping changes that could reshape the future of federal tax enforcement. Under a restructuring plan introduced by billionaire Elon Musk through the Department of Government Efficiency (DOGE), the IRS is expected to reduce its workforce by 18% by the end of May, eliminating thousands of jobs in a move billed as a cost-saving measure.
While the cuts are framed as part of a broader effort to streamline government, tax policy experts are raising alarms about the implications for federal revenue, taxpayer compliance, and trust in public institutions. Critics estimate the reductions could cost the federal government up to $395 billion in lost revenue over the next decade, even as Congress considers extending the 2017 tax cuts, a move projected to add $4 trillion to the national debt.
In a recent panel hosted by Ethnic Media Service on tax enforcement and accountability, Natasha Sarin, Professor of Law and Finance at Yale University and President of The Budget Lab, offered an insider’s view of the developments. Sarin previously worked at the U.S. Treasury Department during the first two years of the Biden administration, where she focused on modernizing and expanding IRS operations.
“During my time at Treasury, I worked primarily on tax administration and was closely involved in making the case for increased IRS funding,” Sarin said. “Now, those efforts are being reversed.”
According to Sarin, the IRS is responsible for collecting nearly 97% of federal revenue—approximately $5 trillion annually. However, an estimated $700 billion in taxes owed goes uncollected each year, particularly from high-income individuals whose complex tax arrangements are harder to audit.
The 2022 Inflation Reduction Act had allocated increased funding to bolster IRS enforcement, especially targeting wealthy individuals and corporations. But those investments are now being rolled back, Sarin warned, citing the termination of 7,000 probationary employees—many of whom were hired for high-level enforcement.
Budget Lab projections indicate that if the IRS is downsized by 50%—a scenario reportedly under consideration—lost revenue could range from $400 billion to $2.4 trillion over the next ten years.
“When enforcement drops, noncompliance rises—especially among those who can most afford to take risks,” Sarin said.
Privacy concerns have also emerged following reports that the IRS has entered into data-sharing agreements with Immigration and Customs Enforcement (ICE), breaking a long-standing firewall that protected taxpayer information from being used for immigration enforcement. Sarin and others warned that such actions erode trust and could dissuade immigrants from filing taxes, leading to further revenue losses.
“These moves undermine the credibility of the IRS and could result in over $300 billion in additional losses due to reduced compliance among immigrant communities,” Sarin said.
Meanwhile, lawmakers are preparing to revisit and potentially extend the 2017 tax cuts signed into law under the first Trump administration. Michael Kaercher, Deputy Director of the NYU Tax Law Center and a former IRS attorney, said the proposed legislation could amount to another $5 trillion in tax relief, disproportionately benefiting high-income earners.
“Roughly half of the proposed tax benefits would go to the top 5% of earners,” Kaercher said. “That’s a significant tilt toward the wealthy at a time of growing budgetary strain.”
Kaercher also criticized lawmakers’ reliance on a “current policy baseline” that assumes the 2017 tax cuts will remain permanent, effectively concealing $3 trillion in additional costs. To offset some of the spending, House leaders have proposed significant cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP), which Kaercher warned would disproportionately harm low-income Americans.
“You’re paying for these incredibly generous tax cuts—if at all—by reducing support for those who need it most,” Kaercher said.
He also rejected suggestions that tariffs or government efficiency measures could close the fiscal gap. “Tariffs are taxes that fall hardest on working families, and the idea that savings from ‘waste and fraud’ will balance the budget is a fantasy—especially when IRS enforcement is being gutted,” he said.
Aravind Boddupalli, Senior Research Associate at the Urban-Brookings Tax Policy Center, echoed concerns about enforcement and trust, particularly regarding the new IRS-ICE agreement.
“This agreement breaks critical data privacy protections and undermines decades of trust that allowed immigrants to participate in the tax system,” Boddupalli said. “It could push taxpayers into the informal economy, where wages go unreported and taxes go unpaid.”
Undocumented immigrants contribute more than $60 billion annually in federal taxes, often using Individual Taxpayer Identification Numbers (ITINs). Experts worry the agreement may lead to decreased filings, reduced compliance, and broader social fallout.
A recent Urban Institute survey found that nearly 30% of adults in immigrant families—and as many as 60% in mixed-status households—avoided essential services due to fear of government scrutiny.
“These are families who may now avoid filing taxes or claiming benefits like the Child Tax Credit, even when eligible,” Boddupalli said.
Richard Prisinzano, Director of Policy Analysis at The Budget Lab, warned that undermining tax administration could result in a significant shift to under-the-table employment, reducing transparency, compliance, and worker protections.
“If trust collapses, people may avoid the formal economy altogether,” Prisinzano said. “And that has implications not just for tax revenue, but for financial stability, labor rights, and community resilience.”
With IRS staffing at risk of falling to levels not seen since the 1960s, experts are urging a reversal in course. They argue that a robust, well-funded IRS is critical to ensuring tax fairness and maintaining the voluntary compliance that underpins the U.S. tax system.
“The damage we’re seeing now—whether it’s budget cuts or breaches of trust—could have long-term consequences,” Sarin said. “And if these trends continue, the cost to our fiscal health and democracy could be far greater than any temporary savings.”