Foreword
Outside of the IRS headquarters, an important message from former Chief Justice Oliver Wendell Holmes is engraved: “Taxes are the price we pay for a civilized society.” As Treasury Secretary, I believed deeply in the importance of a tax system that is fair and allows the United States to efficiently collect what it is responsible for: 96 percent of the revenues that fund the federal government. The IRS is unique in that it is the only institution that touches every American family and business every year. This means that investments in its ability to better serve our citizens and administer the tax system are first order.
I have been troubled by developments at the IRS in recent months which signal that this administration does not take Holmes’ words as seriously as they should. My concerns are myriad, including allowing DOGE access to sensitive taxpayer data; potential targeting of organizations’ nonprofit status in ways that are unlawful; and the hallowing out the IRS workforce, which will reduce revenue collection and undermine the tax system.
I was stunned to hear Secretary Scott Bessent’s say last Tuesday that “there is nothing that shows historically that by bringing in unseasoned collections agents—that that results in more collections or high-end collections.” First off, the IRS has reportedly lost more than 30 percent of its revenue agents in the last few months, including seasoned agents who are responsible for high-end enforcement work. Second, while it is true that it takes new agents hired to the IRS a few years to become fully productive, that does not mean that there is not substantial returns to be had by recruiting and hiring personnel to do complex enforcement work.
Indeed, Secretary Bessent’s statement flies in the face of every empirical analysis done of the impact of investing in the IRS’s enforcement capacity. Numerous studies done by a range of experts suggest dollars spent on improving tax enforcement pay for themselves many times over. Indeed, a recent influential study finds that the returns to high-end enforcement activity are up to $12 for every $1 invested, which captures both significant direct effects from audit activity and are then multiplicative with the indirect effects that come from deterrence associated with IRS enforcement activities. This headline is in line with conclusions from government researchers: For example, the Treasury Department’s inspector general has suggest that each additional hour spent auditing a high earner generates $5,000 in additional tax revenue.
Today, new analysis from the Center for Progress estimates that a loss of 50,000 IRS employees (about a 50 percent cut) would cost nearly $1 trillion ($909 billion) over 10 years.
CAP’s analysis builds on the Budget Lab model, which suggests that a 50 percent decrease in IRS agents could result in $350 billion net forgone revenue over the 10-year budget window. Their analysis showed how, estimated another way, fewer IRS resources would lead to a substantial increase in noncompliance—net forgone revenue could rise by $2.4 trillion over 10 years.
I believe these estimates are directionally correct but that they may understate the magnitude of lost revenue associated with the administration’s decimation of the IRS. In past work with Natasha Sarin, I estimated the impact of investing $100 billion in the IRS to reduce the tax gap—the difference between owed and collected taxes. We concluded that there was more than $1 trillion in revenue to be raised from this type of an effort.
Ultimately, investment along the lines of what we advocated for was legislated in the Inflation Reduction Act (IRA). This administration’s actions will at the very least involve the IRS functioning with a workforce and resources at the low levels that were in place prior to the passage of the IRA. And the losses are even more substantial, given the size of the workforce reductions already and the fact that the administration is looking to cut the base budget of the agency by another 20 percent or more. So, I suspect, that the right way to think about the magnitude of revenue lost is that it is at least in the $1 trillion range. The true revenue potential of modernizing the agency is, of course, much higher, especially if increased dollars were to be paired with new third-party reporting programs that would allow the IRS to better validate that taxpayers are fulfilling their tax obligations.
The precise magnitudes of lost revenue can be debated. But this administration is clearly running the risk of losing hundreds of billions of dollars—and likely over $1 trillion—through its destruction of the IRS. At a time when deficits are high and rising, that seems a baffling policy choice.
While the IRS will never collect all taxes that are owed, to provide a sense of the scope, it is helpful to note that the tax gap totals nearly all nondefense discretionary spending each year. As CAP shows, the IRS cuts that have already been enacted could pay for Head Start for the next 20 years and more with the additional layoffs ahead. The administration is slashing the budget for the National Endowment of the Arts (NEA) in the name of fiscal responsibility, but the losses from the IRS will be roughly 500 times any NEA savings annually.
More generally, uncollected taxes are not a small problem. That means addressing noncompliance has the potential to raise significant revenue and increasing noncompliance—as this administration is doing—will lose significant revenue
In my more than 40 years in public service, I have come to realize that some calls are close. Some are not. This is in the latter category. There is no policy justification for weakening the tax system and decimating the IRS. The IRS will lose revenue but we all will lose as well—not just in access to a tax system that is able to serve us the way we deserve but also in our collective faith and trust that the tax laws will be fairly administered.
—Lawrence H. Summers, former secretary of the Treasury and distinguished senior fellow, Center for American Progress
By May 15, the Trump administration and the Department of Government Efficiency (DOGE) will reportedly implement the largest staffing cut at the IRS since the major probationary layoffs that started in February. New analysis from the Center for American Progress estimates that the combined impact of these staffing cuts—including the thousands that were already implemented—could cost the United States nearly $1 trillion net, in lost revenue, over the next decade.
The number of job cuts proposed is unprecedented. Despite the fact that the U.S. population has nearly doubled since the 1960s and that business transactions and the tax code are more complicated than ever before, the Trump administration via DOGE may cut the IRS by nearly 50,000 workers. This would be equivalent to halving the agency and returning it to midcentury levels. While identifying how technological investment and improvement could help the IRS achieve productivity gains that require fewer staff, those investments have not yet been fully implemented. The IRS is far from that reality and getting there will require more investment, not less. The agency is headed in the wrong direction: In fact, an office tasked with administering the IRS modernization efforts was recently closed.
Cutting the IRS would embolden nefarious behavior at the expense of everyday Americans who pay their taxes in good faith and further erode trust in public institutions. The consequences of these cuts are not easily reversible and will have long-term damage. Many of the most experienced IRS staff have already taken an early retirement, deferred resignation, or voluntary separation. Many were also targeted by the reduction in force (RIF). Indeed, the resultant brain drain that has already occurred in some of the most technical departments at the agency—such as the Global High Wealth department—will take years to rebuild. The IRS has already struggled to recruit and retain early career staff. The agency cannot afford to lose highly skilled employees with deep institutional knowledge.
Quantifying the size and scope of the IRS reductions
The tax gap is the difference between taxes owed and taxes paid and currently amounts to an estimated $700 billion per year. Research shows that tax evasion and noncompliance from the top 10 percent of taxpayers is responsible for roughly two-thirds of the gap. The reason many high-income taxpayers succeed with tax evasion is because they are subject to fewer information reporting requirements.
Most taxpayers have their taxes withheld and reported by their employer on their W-2 or 1099 statements. However, many businesses, including some corporations—but especially businesses registered as pass-through entities such as nonfarm proprietorships—have very little income subject to information reporting. Tax evasion by the means of underreporting income is responsible for about 77 percent of the total tax gap, and research shows that it is highly concentrated among the top 10 percent. That is in part because high earners earn a greater share of income and, thus, are responsible for a larger share of tax obligations. But it is also because high earners disproportionately accrue income in opaque ways that are not subject to third-party reporting, where noncompliance is rampant.
The Global High Wealth department of the IRS is designed to audit ultrawealthy individuals and corporations, who often hire highly sophisticated tax advisors to devise ways to avoid taxes and to respond to the IRS if they are challenged. But, as of late March, the department was cut by nearly 40 percent—and likely more by now with the additional RIFs.
Additionally, approximately 7,400 probationary staff across the IRS were laid off while another roughly 5,000 employees took the Trump administration’s so-called “Fork in the Road” deferred resignation offer. Additional layoffs at the agency placed the projected total initial layoffs in early April at about 18,200 employees. Weeks later, new reporting found that there were more than 20,000 voluntary resignations after the extended deferred resignation deadline, but some employees who took the offer are still working because they are considered essential until May 15. It becomes even more difficult to estimate the total layoffs so far when some employees can walk back their accepted offer and more are being added with every biweekly RIF announcement. However, if future staffing cuts look anything like the initially under reported probationary layoffs, the final number could be larger than anticipated.
More recent reporting indicates that the agency could be reduced by 40 percent as early as August this year. Phased layoffs will take place in some of the most important functional areas of the IRS, according to an April memo obtained by the Federal News Network that stated “taxpayer services and compliance will need to be trimmed.” Staffing cuts in these areas are particularly problematic because taxpayer compliance staff ensure individuals and businesses are paying their taxes in full and on time. When the IRS has no front-end visibility into high-income taxpayers’ income because of the lack of information reporting, it is all the more important that the agency have resources for audits on the back end.
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Return on investment in the IRS
The medium- to long-run costs of halving the IRS workforce would far outweigh the savings from staffing cuts. There is no rigorous evidence suggesting that the consequences of significantly reducing the IRS workforce by such an extreme amount would result in deficit reduction. A range of estimates exist for the direct multiplier effects of IRS enforcement. In their 2024 journal article, “A Welfare Analysis of Tax Audits Across the Income Distribution,” William Boning, Nathaniel Hendren, Ben Sprung-Keyser, and Ellen Stuart estimated that every additional dollar spent on auditing the top 90th to 99th percentile more than pays for itself by generating $12 more in revenue. Audits of the top 1 percent and 0.1 percent of taxpayers have slightly lower multipliers due to their higher costs. However, those audits still return $4.25 and $6.29, respectively. Even for taxpayers in the lower half of the distribution, an extra $1 spent on audits recoups more than $5. This analysis uses a maximum multiplier of eight on the direct effect of audits per the 2016 piece from Holtzblatt and McGuire, which conveniently lands between these estimates.
The Budget Lab at Yale found that, over 10 years, the net effect (cost savings less revenue loss) of cutting the IRS workforce in half would cost taxpayers $350 billion. This analysis builds on that estimate, incorporating findings from the 2024 Boning, Hendren, Sprung-Keyser, and Stuart study that showed the deterrence effects (often called the indirect or behavioral effect) of IRS staffing have a larger and more persistent effect on taxpayer behavior. The study found that the deterrence not only resulted in 3.2 times more revenue collections but also persisted for at least 14 years.
This behavioral multiplier effect in Boning and others is higher than that estimated by the Budget Lab, which takes a conservative approach by assuming a return on investment of just 2.5 based on a range of estimates from the literature. This approach is overly conservative for three reasons.
First, earlier work by Sarin and Summers estimated $1 trillion would be returned by scaling up the IRS. These cuts are scaling down—and then some—further reinforcing the estimates presented below. However, this model approaches the work using a slightly different approach, opting instead for a top-down estimate of the impact of the staffing cuts on revenues rather than starting with a bottom-up approach using the tax gap. The similarities across these estimates, regardless of method, show the sizable impact of staff reductions. Using the same bottom-up approach, the Budget Lab estimated revenues could fall by nearly $2.5 trillion dollars.
Second, data that the Budget Lab relied on was from a variety of studies old and new, and the strongest analysis is from Boning and others. None of the prior studies relied on an administrative dataset as large and rich as the Boning study nor did they incorporate novel salary and business data from the IRS as Boning did.
Third, the Budget Lab gestured something important: Behavioral effects are generally estimated by the margins; the dramatic decline in IRS enforcement capacity is far more significant. The indirect effect of enhanced tax enforcement on deterrence has never been studied using an event as extreme as the Trump administration has proposed. For those reasons, the deviations in CAP’s analysis including a higher estimate of the return on investment from audit—and a larger multiplier for the indirect behavioral effects discussed above—are more than justified.
Estimating the cost
In June, estimated payments will begin trickling in from entities that tend to be more opaque and subject to less third-party reporting. How these payments compare to prior years will be revealing. The estimated cost of losing the initially projected 18,200 workers discussed above would amount to about $350 billion over the next decade. To put these losses into perspective, that is enough to fund the Head Start program for 20 years.
If the IRS staff were reduced by half, the cost of those unprecedented cuts could amount to $909 billion in net forgone tax revenues over the next decade. If staffing cuts were slightly lower, at roughly 40,000 workers—as reported in mid-April by the Federal News Network—the net revenue loss would be $724 billion over the next decade. (Net revenue loss is the gross revenue loss less the savings from staffing cuts.) This magnitude is consistent with estimates from Sarin and Summers (2019); Rossotti, Sarin, and Summers (2020); and Sarin and Mazur (2024).
Conclusion
Estimating the effects of these staff reductions is a challenge when the precise nature of the administration’s RIF at the IRS is not yet known. It is not just the number of cuts that matter for these models but also the nature of the work and experience of the employee. There is no modern example of cuts at this scale to the tax enforcement apparatus of the United States or that of any similarly sized high-income country. Across projections from the Congressional Budget Office, Budget Lab, and others, the conclusion is clear: Cuts to the IRS will substantially increase budget deficits. These deficits will produce negative fiscal consequences for working- and middle-class Americans. Our tax system will be less fair and our country’s finances less sound as a result.
Acknowledgements
The authors thank Natasha Sarin and Richard Prisinzano for their guidance and feedback on an earlier version of this analysis.