As the Department of Government Efficiency (“DOGE”) seeks drastic changes to the federal government in the name of saving money, reporters and commentators have noted that many claimed savings are dubious, highlighting examples like lease terminations that were subsequently rescinded or federal grants that DOGE erroneously claimed to cut but did not actually affect. We argue here that DOGE’s efforts in the tax space are a substantial and overlooked source of costs — untallied in many analyses of DOGE’s impact on the budget, and likely to overwhelm the savings DOGE has achieved. Costly tax-related actions to date include massive layoffs of IRS staff, including those who audit wealthy and large business filers and bring in significant revenue.
Reporters and commentators have explained how DOGE-driven IRS layoffs already planned will increase the deficit by more than $100 billion dollars (and far more with more extreme layoffs), hurt taxpayers seeking to comply with the law, and enable certain wealthy taxpayers and large corporations to get away with not paying the taxes they owe. Even if judge-ordered reinstatements hold, the costs of these layoffs will be substantial, both because of the permanent loss of skilled personnel unwilling to have their livelihoods caught up in legal disputes and because of the lost time on work recovering unpaid taxes from tax evaders and other non-payers.
The February 19 EO [(Executive Order) “Ensuring Lawful Governance and Implementing the President’s ‘Department of Government Efficiency’ Deregulatory Initiative,”] has received relatively little attention, but it could be highly consequential: the EO sets up a process that could facilitate corrosion of any existing government regulation based on political whims or unsupported legal theories.
In tax, implementing this EO could, in combination with other Treasury and IRS actions, add substantially to deficits, undermine the integrity of the tax system, and primarily benefit large businesses and wealthy people. Of special concern is the risk that the EO could be used as cover to justify unlawful actions to undermine, for policy reasons, the tax laws that Congress has passed, for the purpose of punishing those out of favor with the Administration or commercial competitors of Administration officials, or rewarding those in favor.
Because the Administration is pushing for tax cuts for the wealthy and large businesses, many current tax regulations could be deemed at odds with “Administration policy.” But revoking these regulations could add to deficits by making it easier for taxpayers to take (and get away with) aggressive tax positions.
It is also highly concerning that the EO suggests the Administration will stop enforcing tax rules on the books, potentially even before or without following established procedures for modifying existing regulations. The Administration has already made one non-enforcement announcement that will make it easier to get away with tax cheating: non-enforcement of most of the CTA. And now that the Administration has reinstated Office of Information and Regulatory Affairs (“OIRA”) review of tax regulations, we will likely see distorted analysis of their costs and benefits. (As we have previously noted, OIRA analysis of tax regulations is deeply flawed because it ignores tax revenue, the primary goal of the tax system, as a benefit and emphasizes only the cost to affected taxpayers.)
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