The new tax bill burdens an already overburdened IRS

On July 4, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. If you’ve followed the legislation, you likely have heard the staggering toplines: Projected to add $3.6 trillion to the deficit over 10 years, by 2033 the legislation will increase the yearly incomes of the richest 0.1% of Americans by an average of $83,000, while the poorest 20% will lose over $1,300 due to spending cuts. Policy scholars Jacob Hacker and Patrick Sullivan describe the bill as the “most regressive U.S. tax and budget law in at least the past four decades—and possibly ever.” GDP is actually projected to decline in the long term under some forecasts.

But another worrying facet of the law has gone under-recognized: the interaction of a complex new tax law with a hollowed out tax agency. The total IRS workforce is down by 26% since January. The agency remains under an indefinite hiring freeze, and the administration’s budget proposal would leave the IRS with an overall funding reduction of 37% next year.

OBBBA creates serious tax enforcement challenges for even a well-funded, fully staffed IRS. Take, for example, the bill’s preservation of the tax deduction for pass-through businesses. Like much of the OBBBA, the deduction disproportionately benefits the wealthy. It also allows gaming the tax system. Pass-through income was already the largest source of unpaid tax liability due to underreporting, and the deduction further incentivizes business owners to pay less by mischaracterizing their income or industry.

The IRS is tasked with catching tax evasion like pass-through income misreporting, but workforce cuts severely inhibit the IRS’s enforcement capacity—especially against wealthy offenders. Most underreported income comes from the top of the income distribution, but IRS units auditing the wealthy have faced huge cuts. As of March, the Pass-Through Entities office of the IRS had lost 27% of its staff, while the Global High Wealth unit had lost 38%. These staff reductions bode poorly for tax enforcement: When the IRS was crunched for resources in the 2010s, there was a 71% drop in audits of millionaires.

The problem is not just enforcement, however. It might seem obvious, but the IRS must allocate substantial resources just to implement tax law changes by interpreting laws, providing public guidance, updating forms, reprogramming computer systems, training staff, and informing taxpayers. To implement the 2017 Tax Cuts and Jobs Act, for example, the IRS revised or created over 500 tax products, managed over 170 IT work requests, reprogrammed over 50 return processing systems, and revised training for thousands of employees.

The IRS has its work cut out for it with the new mega-bill. Some OBBBA provisions that would have placed large burdens on taxpayers and the IRS were removed, such as the EITC precertification program,  but plenty of others remain. The bill contains many “shiny objects”—eye-catching measures that complexify the tax code and provide little in the way of benefits—like deductions for tips and overtime. There are also special deals benefiting favored industries, like tax exemptions for spaceport bonds and a carveout for meals on fishing vessels. Far more seriously, the Child Tax Credit (CTC) will now exclude children who do not have a parent or guardian with a Social Security Number (SSN). It is the IRS’s job to implement all these provisions, including procedures to exclude an estimated 2.66 million citizen children from CTC eligibility.

Even taxpayers unaffected by these provisions should prepare for delays and headaches. As the Taxpayer Advocate Service notes, the IRS receives more calls after major tax changes—calls that overburdened staff will be unable to answer. The Taxpayer Services division, which provides phone service to taxpayers, has projected losses of over 9,000 (20%) of their employees since January. The underfunding of the IRS in the 2010s left workers unable to answer more than 37% of calls routed to account management phone lines in the 2015 filing season, and next year could be far worse. The agency’s budget request admits that without massive restaffing, IRS employees will answer only 16% of the account management calls routed to them in the 2026 filing season, down from 87% this season.

We do not yet know how much the cuts to the agency will undermine enforcement or taxpayer services in the next tax season. Troublingly, we may not know the full damage to the tax system next year either. The Social Security Administration, under scrutiny after staffing cuts caused service reductions across the country, stopped publicly reporting performance metrics like call wait times. If the IRS does the same, it will be difficult to evaluate the agency’s performance.

One thing is clear: The IRS is used to doing more with less. This year, the agency is doing much more with much less, and ultimately, it is ordinary American taxpayers who will bear the costs.