House GOP passes repeal of IRS funding boost as its first bill in the majority

House Republicans fulfilled a key campaign promise on Monday, passing legislation to rescind the bulk of an IRS funding boost signed into law last year, marking the first bill passed by the GOP-controlled House this Congress.

The bill, which is unlikely to see action in the Democratic-controlled Senate, passed in a party-line 221-210 vote on Monday evening.

Speaker Kevin McCarthy (R-Calif.) announced that the first bill for a GOP-controlled House would be to repeal the new IRS funding in September, when House Republicans released their “Commitment to America” midterm policy and messaging platform ahead of the election.

A boost of about $80 billion in IRS funding over a decade generally aimed at upping high-income enforcement was included in last year’s Inflation Reduction Act, Democrats’ sweeping tax, health and climate bill. 

The Republican bill, formally titled the “Family and Small Business Taxpayer Protection Act,” is barely longer than one page. It directs any “unobligated balances of amounts appropriated or otherwise made available” to the IRS from the Inflation Reduction Act to be rescinded.

The Congressional Budget Office (CBO) estimated Monday that the legislation would eliminate about $71 billion of the total $80 billion that was allocated for the IRS but would reduce tax revenue by about $186 billion, translating to a $114 billion increase in deficits over the next decade.

Republicans have repeatedly falsely claimed the 87,000 new IRS employees, who would be added over the course of a decade, would be “agents.” 

The 87,000 figure comes from a May 2021 Treasury Department compliance report estimating new hires over a decade with the $80 billion funding boost. But only a small portion of the department’s current employees are agents, and the department has said the figure accounts for other workers such as customer service representatives and computer scientists as well as replacements for the 52,000 employees expected to retire or resign within the next six years.

IRS Commissioner Charles Rettig said in an August letter to members of the Senate that the funds from the legislation would be used to up examination of large corporations and high-net-worth individuals and were not designed to raise enforcement for households making less than $400,000. Treasury Secretary Janet Yellen has also said that the agency would not increase audit rates for those taxpayers making less than $400,000.

Republicans, however, argued that the directives did not prohibit increased enforcement activities directed at middle- and low-income taxpayers, and pointed to a CBO analysis that said the funding boost would mean audit rates “rise for all taxpayers.” They also criticized the legislation for not allocating a larger portion to taxpayer services.

The bill stand little chance in the Senate, and the White House said in a statement on Monday that President Biden would veto it if it came to his desk. 

“With their first economic legislation of the new Congress, House Republicans are making clear that their top economic priority is to allow the rich and multi-billion dollar corporations to skip out on their taxes, while making life harder for ordinary, middle-class families that pay the taxes they owe,” the White House said in a statement.

Rep. Adrian Smith (R-Neb.) — the sponsor of the bill who lost a race on Monday to become chairman of the House Ways and Means Committee — touted the measure during debate on the chamber floor Monday, calling it a “first great step” in reforming the IRS to become an agency that works for the public.

“There are numerous reasons to support this bill. It protects families and small businesses. It ensures agencies are funded appropriately. Most importantly, it stops autopilot funding for an out-of-control government agency that is perhaps most in need of reform,” Smith said.

“IRS needs to fix its customer service and return processing problems, not focus on auditing families and small businesses. Americans want an IRS that works for them, not against them. This bill is a great first step in that direction,” he added.

Rep. Richard Neal (D-Mass.), the ranking member of the House Ways and Means Committee, brought attention to the CBO report, saying the bill would lead to a $114 billion surge in deficits over the next 10 years. He also argued that the changes in the bill at hand would make matters worse for the middle class and small businesses.

“They don’t want a fairer tax administration. They think it’s bad for some of their supporters. But you know what? This is — what they’re attempting to do tonight — is bad for middle-class families, it’s bad for small businesses, who then are asked to pay more when the people at the top don’t pay their fair share,” Neal said.

“The American people are wise to what’s being presented here tonight. We live in a two-tier tax system. Wage earners follow the rules. Wealthy billionaires, they get to skirt their responsibilities. And that’s what we’re being asked to vote on tonight,” he later added.