Post Reports: The IRS is in Turmoil. Taxpayers are Taking Notice

Published on March 26, 2025

Hosts: Martine Powers and Elahe Izadi
Reporter: Colby Ekowitz and Jacob Bogage

Introduction

In the March 26, 2025 episode of Post Reports, hosted by Colby Ekowitz, longtime congressional economics correspondent Jacob Bogage delves deep into the current turmoil within the Internal Revenue Service (IRS) and its significant implications for taxpayers and the federal government. This episode sheds light on the predicted decline in tax revenues, the administrative changes under the Trump administration, and the potential ramifications for both the economy and undocumented immigrants.

Predicted Decline in Tax Revenues

At the outset, Jacob Bogage highlights a critical forecast: “The forecast right now is a 10% decrease in tax revenue for this filing season” (00:40). This projection is alarming, considering the IRS’s substantial role in collecting approximately $5 trillion in taxes annually. A 10% shortfall translates to a staggering $500 billion deficit, juxtaposed against the Defense Department's expenditure of about $825 billion the previous year.

Trump Administration and DOGE's Influence on the IRS

Jacob attributes the anticipated revenue drop to the concerted efforts by President Donald Trump and his Department of Government Efficiency (DOGE). Over recent months, DOGE has implemented sweeping changes aimed at downsizing the IRS:

• Mass Layoffs: Thousands of IRS staff have been laid off, significantly reducing the agency’s operational capacity.
• Halting Modernization: Efforts to modernize the tax system have been stalled, hindering efficiency and adaptability.
• Leadership Overhauls: High-ranking officials, including the acting Commissioner of the IRS and the Chief Transformation and Strategy Officer, have been either dismissed or have resigned in protest (01:15).

Impact on Taxpayer Behavior

These administrative upheavals have led to noticeable shifts in taxpayer behavior. Jacob explains, “Taxpayers and major corporations are noticing and they're starting to change their behavior to do more, to pay less” (02:23). The erosion of the IRS's infrastructure and enforcement capabilities has undermined the previously robust voluntary tax compliance system. As a result:

• Ease of Avoidance: Reduced enforcement signals that the IRS is less likely to pursue aggressive tax evasion.
• Increased Aggression: Some taxpayers are adopting more aggressive strategies to minimize tax liabilities, sometimes crossing into fraudulent territory.
• Compliance Difficulties: With fewer resources, actions that were once straightforward have become cumbersome, deterring accurate tax reporting.

Consequences of Lower Tax Revenues

A significant decline in tax revenue carries profound implications:

1. Increased National Debt: A $500 billion shortfall would exacerbate the national debt, currently standing at $36.2 trillion. Jacob warns, “If you add to the debt substantially, to the tune of $500 billion, all the people who lend us money look at that and go, huh? I think I'm less likely to get my money back” (08:22).

2. Higher Interest Rates: To compensate for increased risk, investors may demand higher interest rates on U.S. Treasury bonds, contributing to inflation and making borrowing more expensive.

3. Crowding Out: Elevated debt levels can crowd out essential government investments in infrastructure, healthcare, and defense, perpetuating a detrimental economic cycle.

Jacob emphasizes, “We have been in this doom loop for some time because of rising costs across the federal government... If tax revenue drops this much and then taxpayer behavior changes such that over time we continue to collect less in taxes, that reinforces this doom loop” (09:14).

Potential Data Sharing Deal Between IRS and ICE

After a commercial break, the discussion pivots to a controversial potential agreement between the IRS and Immigration and Customs Enforcement (ICE). This proposed deal would allow the IRS to share taxpayer addresses of suspected undocumented immigrants with ICE, marking a significant shift in the utilization of taxpayer data.

Jacob outlines the proposal:

“The IRS has promised for 30 years, if you file your taxes, they are private. And we do not collaborate with law enforcement or immigration officials to turn over that information voluntarily” (16:01). This deal poses severe privacy concerns, as it undermines the longstanding confidentiality of tax information.

Legal Implications and IRS Reactions

The legality of this data-sharing arrangement is highly questionable. Jacob delves into IRS Regulation 6103, the privacy statute governing taxpayer information:

“The answer is almost none in almost zero circumstances” for whom the IRS can legally disclose taxpayer data (18:30).

Despite the restrictive nature of this law, ICE has maneuvered to exploit its most lenient provisions, requesting taxpayer names and addresses with the caveat that they must be accurate for the IRS to comply. Jacob critiques this approach:

“Immigration and Customs Enforcement went to the IRS and said, if we provide you the name and address of a taxpayer who we think has violated the law by being in this country unlawfully, will you then provide us the name and address of that taxpayer?” (20:24).

The IRS officials are reportedly “apoplectic” about the proposal, perceiving it as an unprecedented breach of taxpayer privacy and an abuse of the agency’s authority (22:04).

Consequences for Undocumented Immigrants and the Tax System

Should this deal materialize, the repercussions would be multifaceted:

• For Undocumented Immigrants: Jacob warns, “It puts undocumented folks in a really difficult position... It will disincentivize compliance in our voluntary tax system” (23:14). The fear of increased scrutiny may drive undocumented individuals further underground, diminishing their contributions and complicating their paths to legal status.

• For the Tax System: Such collaboration could erode trust in the IRS, undermining the voluntary compliance that is foundational to the U.S. tax system. It risks transforming the tax process from a civic duty into a tool for immigration enforcement, fundamentally altering its purpose and effectiveness.

Conclusion

This episode of Post Reports paints a concerning picture of an IRS in disarray, grappling with administrative instability and reduced enforcement capabilities. The Trump administration’s interventions, through DOGE, have significantly impaired the IRS’s ability to maintain tax compliance, potentially leading to a substantial drop in tax revenues. Furthermore, the proposed data-sharing deal with ICE threatens the privacy and integrity of the tax system, with far-reaching implications for both undocumented immigrants and the broader economic landscape. As Colby Ekowitz and Jacob Bogage elucidate, these developments not only jeopardize fiscal stability but also pose existential questions about the role of taxation in democracy.

Notable Quotes:

• Jacob Bogage (00:40): “The forecast right now is a 10% decrease in tax revenue for this filing season.”

• Jacob Bogage (02:23): “Taxpayers and major corporations are noticing and they're starting to change their behavior to do more, to pay less.”

• Jacob Bogage (08:22): “If you add to the debt substantially, to the tune of $500 billion, all the people who lend us money look at that and go, huh? I think I'm less likely to get my money back.”

• Jacob Bogage (16:01): “The IRS has promised for 30 years, if you file your taxes, they are private. And we do not collaborate with law enforcement or immigration officials to turn over that information voluntarily.”

• Jacob Bogage (22:04): “They're apoplectic. I can't get into who my sources are and what kinds of people I'm talking to. But I can tell you that I was on the phone on Saturday with people who were alternatively cursing at me over the phone because they couldn't believe this was happening or were in tears.”

Produced by Rennie Svirnovsky, Bishop Sand, Shawn Carter, Peter Bresnan, and Mike Madden.