Could the IRS Find its Funding Savior in Republicans?

Conservatives have railed against the tax agency for years, but they’re considering boosting its budget to implement the new tax law.

Rep. Dave Brat
AP Photo/J. Scott Applewhite
Jan. 18, 2018, 8 p.m.

For nearly a decade, Republicans cast the Internal Revenue Service as emblematic of everything that was wrong with what they described as the big-government, Washington-centric style of the Obama administration. But a new president is in the White House, a new agency commissioner is at the helm, and most importantly, a sweeping new GOP tax overhaul is in the books.

And if Republicans want to improve their chances of keeping congressional majorities in the November midterms, they’ll need their favorite punching bag to implement the tax bill without a hitch.

“The dynamic has changed,” said former IRS Commissioner Mark Everson. “You’ve had nine years where the Republicans have had a very difficult relationship with the IRS. And now they’re very dependent on the IRS to implement what is the signature legislative achievement of the Republican Congress and the new administration.”

But there’s one problem. IRS funding has been on a steady slide for years, and that’s showing in its service quality. Now, Republicans are entertaining what was once unthinkable—giving the IRS a funding boost to get its operations, administration, and information technology back on a stable footing.

Some of the most ardent IRS critics and tax cutters in the House say there will be conditions to any extra money sent the agency’s way. Still, unlike in past years, they may be ready to consider boosting the agency’s budget.

“I said I’m open to it, but I’ve got to see what they need the money for,” said Rep. Dave Brat, a top member of the conservative House Freedom Caucus. “If it has to do with implementing our bill, and if it has to do with getting the American people refunds quicker, etc., then that’s interesting; I’m open.”

Congress has gradually cut the IRS annual budget by about $1 billion since 2010. President Trump’s proposed 2018 budget would cut funding by another $239 million, 2 percent less than the $11.2 billion in funding in 2017. Since 2010, the agency’s staff has fallen from about 94,000 to 80,000.

Freedom Caucus Chairman Mark Meadows said Tuesday that while his caucus hasn’t taken an official position on increasing IRS funding, the issue has been brought up in meetings with top officials like Treasury Secretary Steven Mnuchin.

“I was actually with Secretary Mnuchin talking about his budget requirements this morning, and so we’re going to look at that in earnest to see what they are going to need to implement the new tax bill,” Meadows said.

At an event held by the Economic Club in Washington last Friday, Mnuchin said the agency should expect additional funding to implement the tax bill.

Much of the recent talk about the budget is bolstered by a report last week from IRS Taxpayer Advocate Nina Olson, who acts as a sort of liaison between the public and the agency. In her annual reports to Congress, Olson has long called for an end to the slide in funding—but this year it was more urgent. The agency requires an additional $495 million in funding over 2018 and 2019 to help implement the new tax law, according to the report, with extensive challenges that range from training employees on the changes to updating programming and systems.

But the assistance from Congress may be tailored and narrow. Republican Rep. David Schweikert, a member of the House Ways and Means Oversight Subcommittee, said there may be conditions to his support.

“Some of the discussions we’ve had in Oversight and other places is if they need more resources, how do you not put the resources into the black hole?” said Schweikert, who is also a member of the Freedom Caucus.

Schweikert pointed to improving information technology and automation as areas he’s considering. What many conservatives haven’t mentioned is increased funding for enforcement.

Buy-in from conservatives including members of the Freedom Caucus, which railed against the IRS for years, may be critical in advancing any funding boost. It was the Freedom Caucus that pushed hard to impeach former IRS Commissioner John Koskinen, alleging that he didn’t comply with a subpoena during a House investigation into the agency’s handling of conservative groups’ applications for tax-exempt status, among other charges.

But Koskinen is gone—the former corporate fix-it man’s term ended late last year—and President Trump appointed David Kautter, assistant Treasury secretary for tax policy, to be acting commissioner. The move has placated many Republicans, including Ways and Means Chairman Kevin Brady, who often proclaims that “circumstances have changed” at the IRS when asked about the possibility of offering new funding to help roll out the sweeping tax bill.

“There is no doubt that this is a once-in-a-generation challenge for the agency as well, so we want to make sure that they could meet it,” Brady told reporters last week, though he added that a funding boost would not be automatic and the agency should use existing resources properly.

Extra funding for a big tax bill is not without precedent: Congress approved more money to the IRS after lawmakers passed the 1986 tax overhaul. It’s unclear how any new money would advance legislatively, whether through one of the many short-term government-funding bills, a planned bill to overhaul the IRS later this year, or some other vehicle.

But while a one-time boost that some lawmakers are considering may help with implementing the tax bill, it likely won’t address the underlying, long-running resource constraints at the agency, said Jennifer MacMillan, government-relations chair for the National Association of Enrolled Agents.

“It is two issues; you need to give them a large infusion of money just to implement the new tax law, but in general they really need more resources,” MacMillan said.

MacMillan points to long wait times at IRS help lines and the gradual closing of taxpayer-assistance centers as examples of declines in service driven by a year-over-year decline in IRS funding that a one-time infusion of cash may not help.

But Republicans have every interest in making sure that the implementation goes smoothly. The tax bill, and with it the IRS, is now their responsibility, analysts say. Everson, who is currently vice chairman of the tax service Alliantgroup, points to the rocky rollout of the Affordable Care Act’s insurance-exchange website, which battled glitches at launch in 2013, as an example of how a technical foul-up can impact public perception of policy.

“That created lasting damage to the Obamacare brand,” Everson said. “Implementation matters.”

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