IRS Funding Surge Punted From Bipartisan Infrastructure Package

An infrastructure package negotiated by a bipartisan group of senators and President Biden will no longer provide a funding surge to the cash-strapped Internal Revenue Service after Republican lawmakers balked at the proposal. 

The bipartisan infrastructure framework had originally included the boost for IRS to offset the costs of $1.2 trillion in spending on roads, bridges and other projects. The funding was expected to create net revenue by allowing IRS to hire more staff and launch more audits and investigations into non-filers and high-income tax cheats. Biden had originally requested $80 billion over the next decade for the tax agency—suggesting it would bring in $700 billion in revenue—but the bipartisan group negotiating the package never revealed the amount it had agreed to spend. 

Sen. Rob Portman, R-Ohio, who is helping to lead the negotiations, confirmed to CNN on Sunday the proposal had been dropped.  

“In terms of IRS reform, or IRS tax gap, which is what was in the original proposal, that will no longer be in our proposal,” Portman said, adding, “One reason it's not part of the proposal is that we did have pushback.” Some Republicans, such as Sen. Ted Cruz, R-Texas, had expressed wariness of the funding increase, suggesting the agency would unfairly target some Americans. 

The bipartisan package is now in flux, with lawmakers renegotiating how they will offset costs. Portman explained Republicans are seeking “cooperation from the White House and [Senate Majority Leader Chuck] Schumer [D-N.Y..] on our pay-fors.” 

The Biden administration and IRS leadership has called IRS funding critical to offset more than a decade of cuts or relatively flat funding at the agency. IRS has shed 17,000 enforcement workers over the last decade, disproportionately from highly specialized, senior examiners who typically focus on the wealthiest individuals and corporations. IRS Commissioner Charles Rettig has said boosted enforcement would focus on high net-worth individuals, large pass throughs, corporate compliance, employment tax field examinations and non-filers with virtual currency, among others. The hiring surge would also go toward customer service efforts, with the goal of improving the phone answering rate to 75% of calls. During the COVID-19 pandemic, that rate dropped to 7%.

Democrats are not willing to abandon their push to boost IRS resources. As part of Biden’s plan to further increase infrastructure spending and to pass other priorities, Democrats are planning to pass a larger package through a process called reconciliation. Republicans have voiced their opposition to that $3.5 trillion bill—the details of which are also still being hammered out—but Democrats can pass the measure unilaterally if they avoid any defections in the Senate. 

The bipartisan measure will need 60 votes in the Senate to pass, while the Democrats-only reconciliation bill would need just 50 to allow Vice President Kamala Harris to cast the tie-breaking vote. Democrats are aiming to walk a fine line to avoid losing any votes from their coalition. 

They are now planning to help offset the costs of that package with IRS funding and the expected net revenue it would produce, which further pushed Republicans away from including it in the bipartisan measure. 

“We found out that the Democrats were going to put a proposal into the reconciliation package which was…similar to the one we had, but with a lot more IRS enforcement,” Portman said. 

The IRS is also seeking a funding boost through the regular appropriations process, hoping to add 6,000 employees in fiscal 2022 alone. Rettig said the agency has already built hiring and onboarding plans to get applicants into the agency quickly after receiving congressional approval. The National Taxpayer Advocate, however, recently warned that IRS is "not equipped to handle the influx of hiring the IRS needs.”