GOP plan to ‘offset’ Israel aid with IRS cuts would backfire, budget experts warn on November 1, 2023 at 10:00 am Business News | The Hill

A recent proposal by House Republicans to take billions of dollars from the IRS and give it to Israel for its war against Hamas is raising alarm from budget experts, who say the push would undercut the party’s calls to reduce the national debt. 

Since assuming control of the House in January, House Republicans have targeted what they’ve described as “wasteful” spending by Democrats. GOP leaders have proposed steep cuts to tackle the national debt.

But budget experts argue a Monday bill from House Republicans, which would take $14.3 billion away from the IRS, will expand the national debt by tens of billions of dollars over the next decade.

The cuts would also hamstring efforts to close the “tax gap” — hundreds of billions of dollars the government is owed every year but fails to collect.

“Paying for new spending by defunding tax enforcement is worse than not paying for it at all, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget (CRFB), in a Monday statement.

CRFB estimated the GOP plan would add more than $30 billion to the debt.

“Instead of avoiding new borrowing, this plan doubles down on it,” MacGuineas said.

Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute, said it was “pretty clear” that “cutting this kind of IRS funding would actually increase the deficit.”

“Instead of being an offset, it would actually make matters worse,” he argued. “The general rule of thumb that the budget scorekeepers use is it’s about 2-to-1. So if you cut IRS funding [by $14 billion to $15 billion], you’re actually going to increase the deficit by about $30 billion.”

The Congressional Budget Office (CBO), which determines how various pieces of legislation affect the national deficit, is now in the process of scoring the bill.

“We are working on it now,” Deborah Kilroe, communications director of the CBO, told The Hill in an email Tuesday morning.

The White House has already promised to veto the bill, favoring a joint military aid package for both Israel and Ukraine. But further IRS cuts could resurface as attachments to military aid specifically for Ukraine, which is a priority for Democrats in need of Republican votes to get the money out the door.

The House is expected to consider the legislation shortly after they return to Washington on Wednesday. But Democrats have already panned the bill as a “non-starter” in the Senate.

“If Republicans had an ounce of shame they wouldn’t condition support for Israel and Ukraine on giveaways to wealthy tax cheats. Making aid to Israel and Ukraine dependent on gutting IRS enforcement funding is an absolute nonstarter,” Sen. Ron Wyden (D-Ore.), the Senate Finance Committee chair, said in a Tuesday statement.

Not all Republicans seem to be in lockstep on the proposed cuts either.  

Asked Tuesday about the framing of the cuts as an “offset,” Sen. Mitt Romney (R-Utah) told The Hill, “I don’t think you reduce the number of IRS agents then expect that you’re going to get more tax revenue.” 

“I think reducing agents means less tax revenue,” Romney said.

The Treasury Department said earlier this month that the U.S. borrowed $1.7 trillion in the one-year period ending in late September, a spike over the previous year that Biden officials partly attributed to low revenue.

The U.S. is currently running a $33 trillion debt, which spiked above its trend line during the pandemic as the government expanded major tax credit programs for lower earners and sent out checks to families while the economy was shut down.

As part of the Inflation Reduction Act (IRA) passed last year by Democrats, the IRS was given an additional $80 billion in funding over the subsequent 10 years. That allotment would have increased revenues by around $200 billion for a net deficit reduction of around $114 billion, according to a CBO analysis.

Republicans — dead set against strengthening the IRS, which has been in long-term decline —have claimed without evidence that the agency would use new funds to shake down middle- and working-class Americans at their doorsteps.

But the IRS’s enhanced enforcement efforts are so far concentrating on wealthy individuals, major corporations, and complicated partnerships that are often used to reduce tax burdens.

As part of an unwritten agreement reached over the summer with Democrats to raise the debt ceiling, Republicans planned to hack $20 billion off the initial $80 billion IRS funding boost through the normal appropriations process.

Democrats panned those cuts, pointing to CBO’s projection of tens of billions of dollars in lost revenue. 

Some Senate Republicans critical of the IRS funding increase have backed the House GOP bill but acknowledge the budgetary impact could be a hurdle.

“If you’re looking for a pay-for, which they clearly are, I think it’s as good as one as there could be,” Sen. Kevin Cramer (R-N.D.).

“The challenge you’re gonna have is a CBO score.” 

While Cramer argued the CBO “doesn’t consider the ramifications to the economy,” he said he expects the CBO could score the proposed cuts as “a net positive, albeit not a very big one.” 

David Wessel, senior economic studies fellow at the Brookings Institution, argued the budgetary impact of the IRS cuts is “not that big,” particularly when taking into account the trillions of dollars the nation spends annually.

But that’s also partly why Wessel thinks “dynamic scoring isn’t really an issue here.”  

“Dynamic scoring is about how will a proposal affect the GDP, how will it increase labor force participation, how will it affect productivity,” he said. “There’s no reason to believe that the kind of money we’re talking about with the IRS funding, if you dynamically scored it to death, would show anything.”

“I just think this is the ultimate in cynical Republican bullshit,” Wessel added.

​Business, House, Senate, Congressional Budget Office, Inflation Reduction Act, IRS, irs funding, Israel-Hamas conflict, Kevin Cramer, Mitt Romney, Ron Wyden, taxes, Ukraine-Russia war A recent proposal by House Republicans to take billions of dollars from the IRS and give it to Israel for its war against Hamas is raising alarm from budget experts, who say the push would undercut the party’s calls to reduce the national debt. Since assuming control of the House in January, House Republicans have…