Sequestration Threatens IRS Jobs, Taxpayer Services, Programs and National Security

Sequestration Threatens IRS Jobs, Taxpayer Services, Programs and National Security

Should the scheduled across-the-board federal spending cuts known as sequestration occur on March 1, the Treasury would have no choice but to drastically cut back on its workforce and financial assistance programs, Acting Treasury Secretary Neal Wolin said in a February 7 letter that became available during the week of February 11. The letter was addressed to Senate Appropriations Committee Chair Barbara Mikulski, D-Md., who had written former Treasury Secretary Timothy F. Geithner and Acting IRS Commissioner Steven T. Miller on January 18 to ask what would be the possible effect of the approximately $85 billion in federal spending cuts due to take place in two weeks.

“The effects would be particularly painful at the IRS, reducing the agency’s ability to provide quality services to taxpayers,” Wolin wrote, predicting that sequestration would necessitate many employee furloughs, impede access of millions of taxpayers to assistance at call centers, delay IRS responses to taxpayer inquiries and expose many taxpayers to fraud. Sequestration would also decrease the IRS’s ability to take enforcement measures against noncompliant taxpayers and lower the amount of revenue that the IRS could generate from taxes. “Each dollar the sequester cuts from current IRS operations would cause a net increase to the deficit, as the lost and forgone revenue would exceed the spending reduction.”

Sequestration would also require the Treasury to make reductions to several of its financial assistance programs. For example, the Community Development Financial Institutions (CDFI) Fund that finances projects for underserved and distressed communities would award fewer or smaller grants. The result would be reduced financing to small businesses, Wolin predicted. Among the numerous programs within the CDFI Fund is the New Markets Tax Credit program, which the American Taxpayer Relief Act of 2012 (P.L. 112-240 ) recently extended for two years.

Also at stake are payments to certain state and municipal bond programs. “Treasury would need to reduce payments…through lower levels of refundable tax credits and direct payments to issuers—likely increasing the borrowing costs to improve infrastructure, schools, affordable housing, and other needs for these communities,” said Wolin. Renewable energy credits and incentives would also be reduced.

Finally, Wolin warned that spending cuts would force the Treasury to cut its expenditures for certain counter-terrorism and anti-money laundering investigation and enforcement actions. This would potentially prevent the Treasury from blocking funds paid to criminal individuals and organizations that threaten the national security of the United States.

Source: CCH