The U.S. federal government could see a 10% drop in tax revenue this filing season—potentially losing over 500billion—amid deep staffing cut sattheI RS and shifting taxpayer behavior.
Why Revenue Is Falling
- Staffing Cuts: The IRS has already dismissed 11,000 employees and plans to cut 20,000 more, reducing its ability to audit returns and enforce compliance.
- Rising Tax Avoidance: Officials report increased online discussions about skipping tax payments or improperly claiming credits, fueled by lower audit risks.
- Legacy of Trump-Era Cuts: Former President Donald Trump’s IRS budget reductions have left the agency struggling with backlogs and scaled-back investigations into major corporations and high-income taxpayers.
A January internal memo, obtained via FOIA, warned Trump’s transition team that aggressive staffing cuts could lead to “backlogs, delays, reduced receipts, and diminished capacity” to modernize tax systems.
Debt Ceiling Crisis Looms
The revenue decline clashes with strong economic indicators—2024 GDP grew 2.8%, personal income rose 8%, and stocks surged 20%—raising questions about where the missing funds are going. Meanwhile, the Treasury’s “extraordinary measures” to avoid default since January may run out by mid-July, per the Bipartisan Policy Center.
A worst-case scenario could force a June cash crunch if tax collections fall far below expectations, jeopardizing the government’s ability to meet obligations.
Pushback and Uncertainty
The Treasury Department dismissed the report as “sensational and baseless,” accusing critics of opposing reforms. While Trump’s tariffs could offset some losses, the IRS traditionally supplies 95% of federal revenue, making the shortfall a critical concern.
With the April 15 tax deadline approaching, the situation underscores a growing rift between economic growth and federal fiscal health—and a potential collision with the debt ceiling showdown.
