Don’t Mix US Tax Administration Policy with the Israel-Hamas Conflict

Alex Brill | AEIdeas

House lawmakers are expected to vote soon on an emergency supplemental funding bill to provide military support to Israel in its war against Hamas terrorists. As a critical US ally facing an incredible threat after a horrific and devastating attack on its people, Israel deserves the United States’ unwavering support. This support thankfully seems to be bipartisan—the Biden Administration appears to be in close cooperation with Israeli leadership, and the President’s $14.3 billion funding request was included in legislation introduced by Speaker Mike Johnson without any changes.

However, there are two controversial aspects of the House’s supplemental funding bill: what is excluded and what is included. Excluded is funding for Ukraine in its defense against Russia. While very disappointing, this is not totally surprising as many Republicans have opposed further aid for Ukraine for some time.

What is included is troubling in a very different sense. Speaker Johnson is attaching a $14.3 billion cut to IRS funding, intended to offset the cost of support for Israel. There are many problems with this move, including:

1. It doesn’t work. As many experienced with the budget process and tax administration know well, cutting funding for the IRS will result in less tax collection. Reduced IRS funding gives an advantage to those seeking to evade their tax obligations and disadvantages those seeking assistance from the IRS in complying with the tax law. According to the Congressional Budget Office, the proposed $14.3 billion cut in IRS funding will actually reduce revenues by $26.8 billion in the coming decade. In other words, constraining the IRS’s ability to enforce tax laws will cause the deficit to grow by $12.5 billion over the next decade, not shrink.

2. It’s complicated. Experts rightly debate the optimal size of the IRS budget, how the IRS should deploy its resources, and what reforms or efficiency-enhancing improvements can and should be pursued. This is a complicated issue that necessitates tradeoffs between the cost of enforcement and the cost of compliance. 

3. It’s controversial. Support for Israel enjoys strong bipartisanship. Israel has earned and deserves this support as one of our closest allies. While critics in Congress, few as they are, do espouse periodic anti-Zionist rhetoric, there are few foreign policy issues with such broad bipartisan support. IRS funding, however, is an extremely partisan issue. Democrats significantly boosted the IRS budget in the controversial Inflation Reduction Act, while Republicans have fought repeatedly in this Congress to cut IRS funding. 

4. It’s extraneous. As misguided as it may be, the House GOP is certainly within its right to alter the IRS budget, particularly after Democrats provided the agency with such a large boost and did so in controversial and partisan legislation. But injecting domestic funding fights into emergency supplemental aid to an ally at war sets a dangerous political precedent. Congress’s ability to stand with our allies in a time of need should not be corrupted by politics.

5. It’s not really about the budget. If lawmakers were truly committed to deficit reduction, they would be having serious debates about feasible strategies to reform our entitlement programs, namely Medicare and Social Security. But by ignoring these large fiscal challenges while claiming that an emergency supplemental funding bill requires an offset, the GOP is showing that it is more committed to political antagonism than to true fiscal conservativism.

If Congress wants to hold hearings on proper funding levels for the IRS, that’s fine. But right now, partisan jockeying needs to be set aside so that a bipartisan, bicameral agreement can be reached on assistance to Israel.

Read here.