No more 'fire-breathing dragons'? Biden agrees to slash IRS funding by $21B as part of debt limit deal — here's how the tax agency plans to cope

Spending cuts, the student loan freeze and more

The bipartisan bill reduces discretionary spending for the 2024 fiscal year and caps it to 1% growth in 2025, which White House officials told reporters could “likely” save around $1 trillion over the next decade.

It also adds new work requirements for adults aged 50 to 54 who don’t have children living with them to qualify for the Supplemental Nutrition Assistance Program (SNAP). The current law only imposes these limits on adults aged 18 to 49, although the bill will exempt veterans, people without housing and young adults 24 and under who are transitioning out of the foster care system.

As for proposed clean energy projects, a lead agency will be created to oversee reviews and ensure they’re completed within one to two years.

About $30 billion in unspent funds from a previous COVID-19 relief bill has also been clawed back, with some of the money diverted to nondefense discretionary spending.

The legislation also ensures that the student loan payment freeze will end in August and restricts Biden’s ability to reinstate it. That means, come September, student loan payments (and interest charges) will resume.

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There’s a major pull-back on IRS funding

To pay for the debt deal, Biden has had to go back on some of his spending plans — especially when it comes to the federal tax agency. The deal rescinds $1.38 billion and another $20 billion of IRS funding from the Inflation Reduction Act will be put toward nondefense programs.

Last year, Biden announced he’d be increasing funding to the IRS, which has been woefully underfunded and understaffed for a decade.

A cool $80 billion was set to be spread over 10 years in order to modernize the agency’s infrastructure and replace its aging workforce. And $45.6 billion from that total was targeted specifically toward boosting enforcement, especially around big businesses and the wealthy tax evaders.

Former IRS Commissioner Charles Rettig estimated in 2021 that the agency loses $1 trillion in unpaid taxes each year and called for more “fire-breathing dragons” to take cheaters to task.

However, some critics raised concerns that dialing up enforcement on upstanding tax-paying Americans could breed resentment and anger. Republicans also approved legislation to pull back on the entire $80 billion.

While the agreement significantly slashes back funding, officials told reporters in a background call at the time it was announced that they expect no disruptions in the short term, according to The New York Times.

And they indicated the IRS could potentially use some of the money that was reserved for later years, and then return to Congress at a later date to request more funding.