On July 4, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This legislation is projected to add $3.6 trillion to the deficit over 10 years. By 2033, it 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. The bill has been described as the most regressive U.S. tax and budget law in at least the past four decades. GDP is actually projected to decline in the long term under some forecasts.
A critical but often overlooked aspect of the law is its interaction with a depleted tax agency. The total IRS workforce has decreased by 26% since January. The agency remains under an indefinite hiring freeze, and the administration’s budget proposal would reduce IRS funding by 37% next year. OBBBA presents significant tax enforcement challenges for even a well-funded, fully staffed IRS. For instance, the bill preserves the tax deduction for pass-through businesses, which disproportionately benefits the wealthy and encourages tax evasion. Pass-through income is already the largest source of unpaid tax liability due to underreporting, and the new deduction further incentivizes business owners to misclassify their income or industry.
The IRS is responsible for catching tax evasion, such as pass-through income misreporting, but workforce cuts severely limit its enforcement capabilities, especially against wealthy offenders. Most underreported income comes from the highest income brackets, but IRS units auditing the wealthy have faced substantial 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 are concerning: when the IRS was under-resourced in the 2010s, there was a 71% drop in audits of millionaires.
The problem extends beyond enforcement. The IRS must allocate substantial resources to implement tax law changes, including interpreting laws, providing public guidance, updating forms, reprogramming computer systems, training staff, and informing taxpayers. For the 2017 Tax Cuts and Jobs Act, 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 a daunting task ahead with the new mega-bill.
Some OBBBA provisions that would have placed heavy burdens on taxpayers and the IRS were removed, such as the EITC precertification program. However, many complex and burdensome provisions remain. The bill includes various “shiny objects”—measures that complexify the tax code with little benefit—such as deductions for tips and overtime. It also contains special deals for favored industries, like tax exemptions for spaceport bonds and carveouts for meals on fishing vessels. 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). The IRS is tasked with implementing these provisions, including procedures to exclude an estimated 2.66 million citizen children from CTC eligibility. Even taxpayers unaffected by these provisions should expect delays and headaches. After major tax changes, the IRS receives more calls, which 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. Underfunding in the 2010s left IRS workers unable to answer more than 37% of calls routed to account management phone lines. Next year could be even worse. The agency’s budget request admits that without significant 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.
The full impact of these cuts on enforcement and taxpayer services in the next tax season is unknown. If the IRS stops publicly reporting performance metrics like call wait times, as the Social Security Administration did after staffing cuts, it will be difficult to evaluate the agency’s performance. One thing is certain: the IRS is accustomed to doing more with less, but this year, it must do much more with much less, and ultimately, ordinary American taxpayers will bear the costs.
