After weeks of back-and-forth, President Biden and Republican House Speaker Kevin McCarthy struck a bipartisan agreement to raise the debt ceiling in exchange for a series of spending cuts, including paring back funding for the Internal Revenue Service.
The IRS received $80 billion last year as part of Democrats' health care and climate change spending bill dubbed the Inflation Reduction Act in August 2022.
The money was aimed at improving tax compliance among big corporations and wealthy Americans, reducing the $600 billion tax gap.
8% of the revenue went to fund scholarships.
But cuts to IRS funding are now a key component of the tentative agreement reached by McCarthy and Biden on Sunday night.
In exchange for a suspension of the debt ceiling for two years, Republicans sought an immediate $1.38 billion cut to the IRS. In addition, the bill would take back up to $10 billion in each of the next two years.
How much are Democrats going to spend on tax agents this year? On Sunday, McCarthy said during an interview on Fox News that he expected to make $1.9 billion. So, we repealed every single dollar they were going to use for IRS agents. The IRS had about 78,700 employees as of 2021, and it had plans to hire nearly 30,000 new employees by the end of fiscal year 2025, including 8,782 hires in enforcement and 13,883 in taxpayer services. The new enforcement employees would be solely focused on high-earning households, larger partnerships and companies, Werfel said.
Republicans and other critics were furious about the funding boost, warning that a beefed up IRS could ultimately hurt lower-income Americans.
White House officials said the clawback in funding would not hurt near-term tax collection.
The amount of debt that the federal government can borrow on behalf of the public, known as Social Security and Medicare benefits, military salaries and tax refunds, is currently $31.4 trillion. In a worst case scenario, the U.S. would be so cash-strapped that it would have to delay its payment of interest or principal on the nation's debt.
The U.S. government bumped up against that limit in January, prompting the Treasury Department to initiate a series of actions known as exceptional measures to stave off a default.
The nation's governor warned last week that lawmakers could run out of money as early as June 5 if they don't raise or suspension the nation's borrowing limit.
Lawmakers are set to vote this week on the proposed agreement between McCarthy and Biden.
If the U.S. fails to raise or discontinue the debt limit, it will eventually have to default on some of its obligations, which could have serious economic implications. The Committee for a Responsible Federal budget notes that interest rates would likely increase and demand for Treasuries would drop, even the threat of default may cause borrowing costs to increase, according to the Committee for a Responsible Federal budget.
While the U.S. has never defaulted on its debt, it came close in 2011 when it refused to pass a debt-ceiling increase, causing a rating agency to downgrade the U.S. debt rating one notch.