House GOP’s Israel-IRS bill could add more than $26 billion to deficit: CBO

CORRECTION: An initial version of this story misstated the amount of money that the CBO says would be added to the deficit from the House GOP’s Israel bill. It is $26 billion.

The House GOP’s $14.3 billion Israel aid package, which is coupled with $14.3 billion in cuts to the IRS, could actually end up adding billions of dollars to the nation’s deficits, the Congressional Budget Office (CBO) said Wednesday.

The estimate released by the nonpartisan office said the package could cost the nation $26 billion in revenue over the next 10 years by reducing what the IRS would take in through taxes.

House Republicans rolled out their supplemental funding package for Israel on Monday, pairing it with the cuts to the IRS so that they could argue the proposal is budget neutral.

Republican leaders and conservatives are unlikely to waver on the pairing even after the CBO estimate, as they have been aggressive in pursuing cuts to the IRS.

The Inflation Reduction Act signed into law by President Biden last year included $80 billion for the IRS to modernize the agency and bolster its tax enforcement, though that number is now effectively closer to $60 billion after debt ceiling negotiations over the summer.

The inclusion of the funds lowered the cost of that legislation, because IRS funding generally brings in more revenue than it costs by a ratio of two-to-one.

The GOP opposed the influx of money for the IRS and argues the money will lead to small businesses and the middle class getting audited and paying more taxes. 

The White House and Democrats say the funding for the IRS is intended to make sure the IRS can answer the phones and go after tax cheats. They’ve insisted it won’t lead to more audits for middle class people and small businesses.

By pairing the Israel money with the IRS cuts, Republicans in the House also hoped to set up a tough vote for Democrats who want to back money for Israel amid its war with Hamas.

Before the Israel aid bill was made public, Speaker Mike Johnson (R-La.) hailed the IRS cuts as paying for the cost of the aid to Israel.

“Here’s the important thing that distinguishes House Republicans from the other team: We’re going to find pay-fors in the budget, we’re not just printing money to send it overseas, we’re going to find the cuts elsewhere to do that,” Johnson said.

But some budget experts warn the new proposal could undercut the party’s calls to tackle the national debt, which has climbed to more than $33 trillion. 

“Instead of being an offset, it would actually make matters worse,” Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute, said of the proposed IRS funding cuts.

“The general rule of thumb that the budget scorekeepers use is it’s about 2-to-1. So, if you cut IRS funding [by $14 billion to $15 billion], you’re actually going to increase the deficit by about $30 billion,” he told The Hill this week. 

In an interview with The Washington Post, IRS Commissioner Danny Werfel said the hidden price tag could be even larger than CBO’s estimate.

“This type of the cut, over the cost of the Inflation Reduction Act, would actually cost taxpayers $90 billion — that’s with a ‘B,’” Werfel told the paper.

This story was updated at 3:31 p.m.