The Internal Revenue Service may be America’s least-loved government agency, but it is one of the most important. Without the taxes the IRS collects, the United States would essentially have no funds for key services and no creditworthiness, and the nation would rapidly grind to a halt. Ensuring that everyone pays their fair share is also a key component of the social contract: If the wealthiest can skip their obligations, that weakens any shared commitment to the common good. No one loves paying taxes, but the IRS does give taxpayers good value: For every dollar spent by the agency, it generates at least $5, and possibly as much as $12; in addition, every hour devoted to auditing the very wealthy produces a return of $13,000.
This time last year, a modernization effort was making real progress in improving the IRS’s service quality. Today, what can only be described as a demolition effort is deliberately dismantling this vital state capacity.
President Donald Trump and Elon Musk’s DOGE intend to cut the number of IRS employees by half. Already, thousands were fired during tax season. Cuts have fallen especially hard on tax-audit functions. The IRS was finally assembling teams with the skills to pursue complex tax scams, those more likely to be undertaken by the very wealthy. These teams, and the accompanying audits, are now falling apart.
As a result, core tasks are being neglected. Less money will be collected, which will increase government spending deficits and put pressure on appropriations for crucial programs. The very rich, in particular, will benefit. Not only are they likely to be handed an extension of the tax cuts from Trump’s first term; they are also getting a tax-reporting environment where the IRS will simply be unable to keep up. “All of a sudden, these cases are going to be closed and we’re going to look like idiots,” one senior revenue agent told an investigative-journalism nonprofit. “There is no one left to work them.” This Tax Day, the IRS has never been in worse shape.
The early firings focused on probationary employees, but many of those relatively new employees did have substantial experience, because the IRS had been focused on recruiting specialists in accounting and tax law who can keep up with their private-sector counterparts. The unit that examined billionaire tax evasion has already lost 38 percent of its staff.
DOGE says it will write new code to replace the IRS system. This has served as a justification to halt the modernization program. The new code may or may not work well, but it won’t replace the auditing functions performed by human experts who generate much more revenue than they cost.
These cuts will be a boon for wealthy tax cheats. The wealthiest 1 percent of Americans are responsible for about 28 percent of uncollected revenue. Trump just gave them a license to keep dodging taxes. “Large businesses and higher-wealth individuals are where you have the most sophisticated taxpayers and the most sophisticated tax preparers and lawyers who are attuned to pushing the envelope as much as they can,” according to John Koskinen, a former IRS commissioner. “When you hamstring the IRS, it’s just a tax cut for tax cheats.”
Another grave area of concern is the way the IRS is being recruited as a tool of the Trump administration’s mass-deportation plan. When DOGE first demanded access to IRS data, it was rebuffed, because providing such data would be illegal without an act of Congress. The Privacy Act of 1974 reflected fears about both political abuses of tax data and, as Danielle Citron documents in Lawfare, unprecedented surveillance of the public enabled by new technologies.
Now, however, the IRS is starting to share its data without congressional oversight. As with many areas of Trump policy, the process starts with unauthorized immigrants, a group that is less likely to draw large-scale pushback. The Department of Homeland Security has deputized IRS agents as immigration officers and reached an agreement to receive IRS data about undocumented immigrants. ICE officials have told the IRS that they hope this tax information can help them deport as many as 7 million people.
One predictable effect is that immigrants will see the tax system as a risk to avoid, and move their labor into an informal economy characterized by untaxed, under-the-table payments. Audrey Casillas, who helps low-income workers prepare their taxes in Los Angeles, told The New York Times, “The fear is real. There a lot of no shows. Clients are asking us: ‘Is ICE going to be there when we do our taxes?’” Beyond the human costs, the financial losses to the U.S. are great. Undocumented migrants pay an estimated $66 billion in taxes; $43 billion supports Medicaid and Social Security, programs they’re unlikely to benefit from. If immigrants become half as likely to file, the Budget Lab at Yale suggests that the losses would add up to $313 billion over a decade.
Beset by problems, the IRS is experiencing a dire vacuum of leadership. Trump has nominated Billy Long, a former congressman with no experience running a large organization, to lead the IRS. The outgoing commissioner, Danny Werfel, had been willing to stay in the position until the new one was in place, but resigned when his offer received no response. He was replaced by an acting commissioner, a career official named Doug O’Donnell. O’Donnell quit a month later, after he rejected calls to share IRS data. Next up was acting Commissioner Melanie Krause. She was seen as more aligned with DOGE, and put the chief human-capital officer on administrative leave for not being cooperative enough with DOGE. Krause herself resigned earlier this month after DHS succeeded in accessing IRS data. So the agency has gone through three commissioners in three months; other resignations over the privacy violations have included the chief of staff, the chief financial officer, the chief risk officer, and the chief privacy officer.
Presumably, the Trump administration will eventually find people to fill these positions, but you cannot gut the entire leadership of an organization without severe disruption. Taxpayers should be very worried when the entire C-suite of the nation’s revenue-collecting organization exits because none of the executives want to be associated with what happens next.
One final concern is that Trump will use the IRS to pursue his political enemies. This is standard practice for authoritarians, and not without precedent in the United States: President Richard Nixon pursued such practices to the extent that they gave rise to charges in the impeachment case that was mounting before he resigned. We have no evidence yet that this is happening now, but there are worrying signs. Trump has mused about using the IRS in this fashion. He has also placed a political appointee in the leadership of the IRS’s criminal-investigations division for the first time since the Nixon era.
If Musk and DOGE truly cared about closing the deficit or tax fairness, they would increase the modernization investments at the IRS. But their revealed preference is for a tax system that does not trouble the wealthy unduly, and makes taxation more voluntary, a tip jar for public services. America will become one of the countries where tax payments are largely optional for the very rich and are avoided entirely by poorer migrants. Yale’s Budget Lab estimates that, taking into account the induced noncompliance, the full effect of the proposed IRS cuts would be a $2.4 trillion loss over a decade. That means DOGE’s biggest financial impact will be on the IRS—but in the opposite direction of what has been promised: costing the government an extraordinary amount of money in return for relatively minor savings. When you add up the numbers, you begin to understand how Trump managed to bankrupt a casino.
The post How the Trump Administration Is Taxing the IRS appeared first on The Atlantic.
