Harvard University professor Larry Summers has expressed serious concerns about the ongoing changes at the IRS under the Trump administration. Summers warned that the current cuts and downsizing at the agency could potentially cost the U.S. government more than $1 trillion in lost revenue over the next decade. His statement reflects broader concerns over the administration’s approach to tax enforcement and its long-term economic consequences.
The IRS, tasked with collecting taxes and enforcing tax laws, is facing significant challenges as a result of policies and decisions implemented during the Trump era. A central issue raised by Summers is the workforce cuts that have been implemented at the IRS. According to reports, about 20,000 IRS employees, roughly one-fifth of the agency’s workforce, opted to take a deferred resignation offer in recent months.
This follows an earlier wave of resignations, where approximately 4,700 employees chose to leave earlier in the year. Additionally, around 7,300 probationary employees were put on administrative leave. These departures come on top of leadership turmoil within the agency, which has had five acting commissioners since Trump took office.
The current crisis at the IRS is not just about staffing levels. The overall structure and functioning of the agency have been severely affected, with reduced personnel and a lack of leadership stability. The agency, which has already struggled with outdated technology, is facing a significant backlog of tax returns and a decline in its ability to audit and enforce tax laws effectively.
Summers pointed out that the cuts to the IRS would make it harder for the agency to function as intended and would increase the risk of tax evasion, resulting in a significant loss of government revenue.
Summers also discussed the broader implications of undermining the IRS. He argued that reducing the IRS’s capacity to process tax returns and conduct audits would lead to a rise in tax evasion. As he explained, when the government weakens the IRS and delegitimises the agency’s ability to enforce tax laws, individuals and companies are less likely to comply with tax requirements.
Summers predicted that many would shift income to cash payments and fail to report them, while others would engage in fraudulent activities, such as misvaluing assets, to avoid paying taxes.
This shift from above-ground to underground economic activity could have dire consequences for American competitiveness, Summers warned. He emphasised that encouraging tax avoidance undermines the fairness of the tax system, ultimately hurting the economy. This could also result in greater wealth inequality, as those who are able to hide their income would benefit at the expense of law-abiding taxpayers.
The loss of tax revenue due to these policies is not a minor issue. Summers, who is also a paid contributor to Bloomberg TV, expressed deep concern that the U.S. could lose up to $1 trillion in revenue over the next decade if current trends continue.
“I’d be surprised if we’re not on a path to sacrificing more than $1 trillion of revenue over the next decade because of this misguided, wanton attack on the IRS,” Summers said. This potential revenue loss could have serious consequences for the U.S. fiscal situation, increasing the national deficit and forcing the government to make difficult decisions in the future.
In light of these concerns, Summers urged the government to reconsider its approach to downsizing the IRS. He pointed out that the most capable employees, who could easily find better opportunities elsewhere, are the ones most likely to leave the agency. As a result, the IRS would be left with a less experienced and capable workforce, making it even more difficult to carry out its functions effectively.
The situation has also led to turmoil within the Treasury Department, which oversees the IRS. On Friday, Treasury Secretary Scott Bessent announced the appointment of Michael Faulkender, his deputy, as the new acting IRS commissioner. This decision followed reports that Bessent’s predecessor was appointed under pressure from outside forces, specifically billionaire Elon Musk, without Bessent’s knowledge. Bessent has emphasised that restoring trust in the IRS is essential to ensuring its effectiveness in carrying out its mission.
The Biden administration proposed a significant increase in funding for the IRS, intended to address staffing shortages, enhance technology, and improve the agency’s ability to collect taxes more efficiently. However, these proposals faced resistance from Republican lawmakers, who ultimately scaled back the funding. This decision has left the IRS struggling to modernise and meet the demands of a rapidly changing economy.
The Budget Lab at Yale, a nonpartisan research organisation, has provided estimates on the potential financial impact of IRS downsizing. According to their analysis, the loss of approximately 18,000 IRS employees could result in a revenue loss of about $159 billion over the next decade. However, if tax non-compliance becomes widespread, the revenue loss could rise significantly, potentially reaching as much as $1.6 trillion. This would only add to the nation’s already serious fiscal challenges.
The implications of these cuts are significant, especially as the U.S. faces rising deficits and growing demands for social services. If tax compliance continues to decline, it could force the government to raise taxes elsewhere or cut vital public services, further exacerbating economic inequality.
Summers has been outspoken about the risks of undermining the IRS’s ability to do its job. He warned that weakening the agency would only increase the likelihood of tax evasion, ultimately harming the broader economy. He also expressed concern about the long-term damage this could cause to the United States’ global competitiveness, particularly in the face of rising economic challenges and growing wealth inequality.
As Summers pointed out, the effects of these cuts have not yet been fully realised, but the risks are high. If the IRS’s ability to enforce tax laws continues to be undermined, the U.S. could see a dramatic shift towards a more unequal, underground economy. This would only make it harder to address the nation’s fiscal challenges in the future.
Summers’ analysis paints a grim picture for the U.S. economy if current IRS policies continue. The potential revenue loss, combined with the damage to the tax system’s integrity, could have far-reaching consequences. As policymakers continue to debate the future of the IRS, they must consider the long-term economic implications and the necessity of a robust, effective tax system.
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