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Washington D.C. – The Trump administration’s plan to slash thousands of federal jobs in an effort to cut costs is drawing scrutiny, particularly at the Internal Revenue Service (IRS), where the reductions could end up costing the government billions in lost tax revenue.
According to a new report from Yale University’s Budget Lab, the administration plans to cut approximately 18,200 IRS positions by mid-May through layoffs and buyouts. Other reports suggest the agency could ultimately lose as many as half of its 100,000 workers. While the cuts are expected to save $1.4 billion in 2026, the study estimates that reduced IRS staffing will lead to $8.3 billion in lost tax collections next year, resulting in a net revenue loss of roughly $6.8 billion. Over a decade, that figure could reach $159 billion in uncollected taxes.
Experts warn that these cuts will significantly impact the IRS’s ability to enforce tax laws, particularly among wealthy individuals and corporations. Many of the affected workers are responsible for compliance efforts, including auditing high-income earners and businesses suspected of tax evasion. Others work on modernizing IRS technology or providing taxpayer assistance—critical functions that help maximize revenue collection.
“If you’re trying to save money, you don’t cut the place revenues come from,” said Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center.
Already, the Treasury Department projects at least a 10% reduction in tax revenue this spring due to IRS staffing cuts, amounting to more than $500 billion in lost revenue—more than the annual budgets of most federal agencies.
Audits of high earners are especially lucrative for the IRS. Research shows that for every dollar spent auditing the top 1% of income earners, the agency recovers more than $4 in unpaid taxes. However, with fewer auditors on staff, tax evasion is likely to rise.
“When you say to somebody, ‘Your probability of being audited went down by 50%,’ they might increase their risky behavior, because they’re less likely to be caught,” said Richard Prisinzano, director of policy analysis at Yale’s Budget Lab.
The IRS has long reported a “tax gap”—the difference between taxes owed and taxes collected on time. Yale researchers project a tax gap of $769 billion in 2026, which could swell by an additional $134 billion if the IRS proceeds with mass layoffs. Wealthy Americans account for a significant portion of unpaid taxes, with the top 1% responsible for 28% of the tax gap.
Critics argue that the cuts are part of a broader effort to reduce taxes for the wealthy, both by cutting tax rates and weakening enforcement. “Attacks on IRS funding are a very reliable way to reduce the taxes of the richest households without actually passing a law,” said Josh Bivens of the Economic Policy Institute.
Supporters of the IRS cuts, including some conservative economists, argue that aggressive tax enforcement creates unnecessary compliance costs for law-abiding taxpayers. “You don’t want no auditing,” said Chris Edwards of the Cato Institute. “On the other hand, you don’t want an auditor in everyone’s living room, examining their laptop.”
As the IRS braces for mass layoffs, the debate continues over whether shrinking the agency will actually achieve the Trump administration’s cost-cutting goals—or lead to far greater financial losses.
