Elon Musk’s cut-first, aim-later run through the federal government is predicated on the idea that the nation’s finances are in crisis and that it needs to drastically cut spending to recover. But at least one cut Musk’s team is planning will actually cost the government money, worsening the supposed fiscal crisis that the Trump administration is claiming is a national emergency.
That’s Musk’s plan to cut jobs at the US Internal Revenue Service.
At the behest of Musk’s Department of Government Efficiency team, the IRS reportedly plans to lay off up to 6,700 employees, and the cull began last Thursday. Those affected include over 5,000 workers handling auditing and collections, despite assurances from IRS managers that positions critical to tax filing season have not been impacted. Many of them are probationary employees who have been working for the federal government for less than a year and are not entitled to severance.
So how are these cuts going to cost money?
It turns out that money spent on IRS agents pays for itself many times over, because when there are more people doing tax enforcement, the government takes in more of the revenue it’s legally owed under the tax code.
The Biden administration showed that investing in the US Internal Revenue Service can be a boon to tax revenues, hiring new agents — and focusing enforcement on the highest earners.
The layoffs might only be the beginning: Trump has also proposed the creation of an “External Revenue Service” funded by tariffs, reportedly with the intention of replacing the IRS. It sounds far-fetched, and Trump famously floats a lot of extreme ideas that never come to fruition. But any further significant reduction in the IRS workforce, however, could lead to a corresponding decline in tax collections — especially among the wealthiest Americans who have recently been targeted for tax enforcement.
The IRS got more resources and higher tax revenues followed
In mid-2022, President Joe Biden signed the Inflation Reduction Act, which included an $80 billion investment over ten years in tax enforcement activities at the IRS, including the hiring of more IRS agents. In the two years that followed, the agency’s workforce grew by more than 15,000 permanent employees.
A big spike in tax revenues followed, with gross collections jumping from $4.7 trillion in fiscal year 2023 to about $5.1 trillion the next year, according to data from the IRS and the National Taxpayer Advocate.
Obviously, there are a lot of factors that contribute to tax revenue levels, including, most importantly, the state and size of the economy in a given year. But in the 2023-2024 leap,
much of the increase came from enforcement activities against people making over $400,000 per year, according to a report from the Government Accountability Office. That suggests that stepped-up IRS enforcement played a prominent role.
The agency collected about $1.1 billion from just 1,600 of those wealthiest Americans with unpaid tax debts in fiscal year 2024, up from $38 million the year before. That money was only recovered because the IRS finally had the required staffing levels to investigate, helping to make some progress in closing an estimated $696 billion gap in unpaid US taxes.
Despite significant boosting funding for the IRS, the costs of tax collection have actually gone down in recent years. For every $100 collected, the IRS only spent 34 cents in fiscal year 2023, near historic lows.
None of that has proved enough for the Trump administration to save the jobs of the thousands of IRS workers now facing layoffs. Reducing the IRS workforce at a time when revenues and efficiency have been increasing may ultimately backfire, exacerbating the alleged financial crisis that Musk purports to want to solve.
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