The Trump administration’s sweeping plan to slash federal jobs is colliding with a major fiscal warning, while the Department of Government Efficiency (DOGE) touts IRS staff cuts as a money-saving move, new research suggests it could do the exact opposite, costing the U.S. government billions in lost tax revenue.
According to a leaked internal memo, the Trump administration plans to cut around 18,200 IRS jobs by mid-May, with projections showing up to half of the 100,000-person workforce could be gone by year-end. The reason? DOGE says it’s a part of reducing bloated government and curbing spending. But economists warn it’s like firing your company’s billing department, only worse.
A study by Yale’s nonpartisan Budget Lab estimates the 18,200 layoffs would save $1.4 billion in IRS payroll next year, while slashing tax collections by $8.3 billion. That’s a net loss of nearly $6.8 billion in 2026 alone. Over the next decade, the total in uncollected taxes could hit $159 billion.
“If you’re trying to save money, you don’t cut the place revenues come from,” said Vanessa Williamson, senior fellow at the Urban-Brookings Tax Policy Center. And the IRS isn’t just another agency, it brings in more than 90% of federal revenue.
Among those affected are compliance officers, tech modernization teams, and taxpayer assistance reps. But the biggest impact? The loss of auditors, especially those who target the top 1%. For every dollar spent auditing a wealthy filer, the IRS recovers over $4 in unpaid taxes. Remove those auditors, and the wealthy get bolder about dodging taxes.
“Tell someone their audit risk just dropped 50%, and guess what, they’re more likely to cheat,” said Budget Lab policy chief Richard Prisinzano.
The IRS already projects a 10% drop in tax collections this spring, amounting to $500 billion in lost revenue, more than the budgets of most federal agencies combined. And with fewer audits, the so-called “tax gap”, the difference between what Americans owe and what they actually pay, is expected to balloon. By 2026, the gap could reach $769 billion, and $134 billion of that could be directly tied to the DOGE cuts, the report warns.
While the Biden administration had previously funneled nearly $80 billion into the IRS to enforce tax collection, especially among the wealthy, Republicans blasted it as a war on middle America. Trump and DOGE’s IRS cuts fulfill a campaign promise to roll back those enforcement efforts. Critics, however, see the move as an indirect tax cut for the rich.
“It’s a reliable way to reduce taxes for the top 1% without ever voting on a tax bill,” said Josh Bivens of the Economic Policy Institute.
Still, some argue that aggressive IRS enforcement creates unnecessary compliance burdens for honest taxpayers. “If you hire more auditors, you get more audits, some of which hit people who already follow the law,” said Chris Edwards of the Cato Institute.
At the heart of the debate is a simple trade-off: short-term payroll savings versus long-term tax losses. And with the federal deficit already ballooning, some wonder whether slashing the IRS now is a strategic misstep masked as efficiency.
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