Just Taxes Blog by ITEP

Government Shutdown is Rooted in Hypocrisy, Dysfunction, and, As Always, Tax Cuts for the Rich

September 27, 2023

It seems increasingly inevitable that the government will shut down at the end of the week. The federal fiscal year ends on September 30, and so far, Speaker McCarthy has been unable to wrangle his House majority into passing the necessary spending bills to keep the lights on come October 1.

The current chaos lies in a flurry of disagreements between the Speaker and the ultra-conservative members of his party on disparate issues ranging from a “woke” military to legislative budget procedures. But both camps agree that if they ever manage to pass the necessary spending bills, the cuts to public services, including education and clean water, should be much higher than those agreed to by the President and House leaders earlier this summer.

The Fiscal Responsibility Act passed both chambers of Congress with bipartisan support and was signed by the President in June to avert a cataclysmic default. As part of the deal, the White House and Senate Democrats agreed to demands from McCarthy and his caucus for significant spending cuts. That deal set specific funding levels for defense, Veterans Affairs medical care, and all other non-defense discretionary programs – programs that require annual appropriations from Congress. The deal required about $2 billion in cuts next year to non-defense, non-VA discretionary spending programs.

Senate leaders quickly moved forward with appropriations bills that closely followed that agreement. In July, for the first time in five years, the Senate managed to approve all 12 of the annual appropriations bills with bipartisan support, signaling that perhaps there was some possibility of ongoing cooperation between the two parties.

But House Republicans immediately decided they no longer liked the deal they had negotiated and voted for. Instead, the GOP proposed an additional $58 billion cut for the upcoming fiscal year. Combined with the already-agreed-to $2 billion, this added up to a $60 billion cut to discretionary programs outside of defense and VA medical care.

That figure may sound vaguely familiar to close tax policy watchers. In June, just a few weeks after threatening to cause a debt default, House Republicans moved to increase the deficit with tax cuts for big businesses. ITEP estimated that those tax cuts would provide enormous benefits to the richest Americans – just over $60 billion next year to the top 20 percent.

The priorities in this shutdown drama couldn’t be clearer. House Republicans once again threaten the financial security of millions of Americans to exact cuts to programs like Head Start, the Social Security Administration, and the EPA – all while seeking unaffordable tax cuts for multinational corporations, the wealthy, and foreign investors.

Cuts to IRS Funding Will Cost the Country Billions

On top of the discretionary cuts to the annual appropriations bills, House Republicans in the same bills called to rescind enormous amounts of funding from the IRS. The Inflation Reduction Act that was passed last year included $80 billion in additional funding for the agency over the next 10 years. That funding was intended to modernize the agency and crack down on wealthy tax cheats after it had fallen on hard times from decades of funding cuts. By 2021, the agency had 40 percent fewer revenue agents than it had in 2010.

These funding cuts created headaches for regular Americans who were left dealing with an IRS with ever more outdated business technology. But the cuts were enormously lucrative for big corporations and the wealthy elite who could afford armies of tax lawyers and accountants to outmaneuver the IRS. Audit rates for private businesses fell to 0.05 percent, for example, while the number of these business filings crept upward every year.

The result is a half-trillion dollar gap between the taxes that are legally owed and what the agency actually collects each year. CBO has estimated that rescinding the additional IRS funding will increase the deficit by more than $100 billion. Whatever concerns one might have about government spending, it would be lunacy to slash IRS funding in pursuit of a more balanced budget.

Shutdowns are a Bad Deal for Taxpayers

The impact of the House GOP’s dysfunction will stretch well beyond the beltway. Millions of federal workers all over the country will either be sent home or told to keep working without pay. This could mean disruptions to food and drug inspections, delays to permitting, and long waits for loans to small businesses and farmers. Millions of Americans could be left waiting on SNAP, WIC, and Section 8. National parks and forests might also be forced to close their gates.

Government shutdowns are not a good deal for taxpayers, who will still owe the same amount of taxes whether Congress allows them access to the things those taxes are supposed to pay for or not. And shutting down those services ends up costing the government more. Agencies eventually provide back pay for the workers furloughed during the shutdown, but the government forgoes fee collections during that period and loses out on the missed productivity from workers who were sent home.

The economy also suffers. Millions of federal workers tighten their belts while they are left waiting on their paychecks, and the government itself is unable to purchase many of the goods and services it normally uses. Businesses may miss out on government contracts, permits, or loans. The Congressional Budget Office estimated that the five-week shutdown in 2018-2019 added up to a $3 billion loss to GDP.

We don’t have to be here right now. President Biden and Speaker McCarthy negotiated and agreed to a budget deal that was intended to prevent any shutdown for the next two years. Not everyone in either party was pleased with all the specifics of the deal, but it passed with large bipartisan support and would keep government services that the public is paying for up and running. While the Senate swiftly moved forward with that agreement, Kevin McCarthy’s House once again slid into disarray and dysfunction.


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