Yellen says Republican cuts to IRS funding would be 'damaging and irresponsible'

Treasury Secretary Janet Yellen condemned Republican efforts to claw back funding for the IRS in its effort to provide Israel with $14 billion in aid.

Treasury Secretary Janet Yellen on Tuesday defended the IRS against funding cuts proposed by Republican lawmakers in exchange for more than $14 billion in aid to Israel in its war against Hamas.

"The current proposals to cut funding for the IRS make this an especially crucial time to talk about the importance of this work," Yellen said during remarks delivered at the IRS headquarters in Washington. "Playing politics with IRS funding is unacceptable. Cutting it would be damaging and irresponsible."

Democrats allocated $80 billion for the IRS in a bill that President Biden signed into law last year. The influx of money is intended to improve taxpayer services and shrink the estimated $600 billion tax gap by cracking down on corporations and wealthy tax cheats.

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But the funding elicited fierce pushback from Republicans and other critics, who say that a beefed-up IRS could ultimately hurt lower-income Americans. 

House Republicans led another effort to claw back some of that money last week, passing a bill mostly along party lines that would pay for $14.3 billion in aid to Israel with cuts to IRS funding. A dozen Democrats supported the measure, while two Republicans voted against it.

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GOP lawmakers said the IRS cuts would save taxpayer money and help to offset spending on other measures. However, the nonpartisan Congressional Budget Office has projected that reducing the agency's funding will actually cause the federal deficit to grow by more than $26 billion.

Senate Democrats and the White House have called the bill a nonstarter, with Biden vowing to veto it if it reaches his desk. 

Yellen touted some of the modernization and improvement efforts underway at the IRS, including investments in customer service, technology and a limited-scope free Direct File program the agency is launching in certain states for the upcoming tax season. Taxpayers will also be able to upload 20 additional tax forms by early 2024, earlier than previously anticipated.

"The impact will be significant and far-reaching," Yellen said. "Taxpayers will save time and effort. The IRS will reduce errors and storage costs. And we’ll speed up processing times for the system as a whole."

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Yellen reiterated that the IRS remains focused on enhancing enforcement among "high income-earners" amid concerns that audit rates will increase for Americans who earn less than $400,000 a year.

The agency has already collected $160 million in back taxes this year as part of its sweeping crackdown on tax evaders.