DOGE’s Cost-Cutting Measures at the IRS Resulted in a Greater Loss of Tax Enforcement Income

Federal tax enforcement revenue fell sharply in fiscal year 2025, and a new watchdog report ties much of that decline directly to the staffing cuts carried out under the Department of Government Efficiency (DOGE), the cost-cutting initiative Elon Musk led during the early months of the second Trump administration.

What the Watchdog Found

The Treasury Inspector General for Tax Administration (TIGTA), the IRS’s independent oversight body, reported that total enforcement revenue dropped from $98.7 billion in fiscal 2024 to $93.8 billion in fiscal 2025 — a decline of roughly $4.9 billion. The steepest part of that drop came from audits specifically: revenue collected at the conclusion of tax audits fell from $10 billion in 2024 to $6.5 billion in 2025, a 35% plunge, according to TIGTA’s August 26 report.

TIGTA pointed to a straightforward cause. The agency’s collection and examination staff shrank from 27,217 employees in fiscal 2024 to 17,517 as of January 2026 — a loss of nearly 10,000 workers, or roughly 36% of that workforce. The watchdog cautioned that the full effect may not be visible yet, noting the impact of the staffing losses “may become more apparent over time.”

“These losses present a challenge to improving taxpayer service and enforcing the nation’s tax laws,” TIGTA wrote, adding that it is “concerned about how staffing losses are impacting the IRS’s ability to ensure that it meets department priorities.”

How the Cuts Happened

The staff reductions trace back to the opening days of President Trump’s second term. Almost immediately after taking office in January 2025, Trump and DOGE imposed a hiring freeze across executive branch agencies, including the IRS. The freeze carved out exceptions for military, public safety, and immigration enforcement personnel, but left tax collection and audit staff exposed. On top of the freeze, the IRS saw a wave of early retirements, and every probationary employee at the agency was terminated outright. TIGTA had separately found that the IRS lost roughly a third of its tax auditors in just the first three months of the new administration, largely through layoffs and the deferred-resignation program DOGE used government-wide.

The staffing losses weren’t evenly distributed. Audits of high earners took a particular hit: the IRS opened about 43,000 examinations of taxpayers earning more than $400,000 in fiscal 2025, down 26% from the 58,000 such audits opened the year before. The agency’s Global High Wealth program, which focuses on the most complex returns from the wealthiest filers, had 27% fewer employees as of January 2026 than it did before the fiscal 2025 cuts began. Audits of new business partnerships fell even further, dropping 30% as a broader agency reorganization shifted staff around and delayed training for revenue agents.

Not every enforcement metric moved in the same direction. The IRS actually opened 17% more audits of large corporations in fiscal 2025 than the year before, and total federal tax receipts still rose to $5.3 trillion for the year, up 4.2% — meaning the drop was concentrated in audit-specific revenue rather than in overall collections, which continued climbing.

The Response From the IRS

IRS leadership has pushed back on the idea that the agency’s enforcement capability is deteriorating. Frank Bisignano, the IRS’s chief executive officer, told the Senate Finance Committee in April that the agency is leaning more heavily on technology to close the gap left by fewer auditors. “Our advanced data and analytic strategies allow us to catch instances of tax evasion that would have been undetectable just a few years ago,” Bisignano testified, pointing to artificial intelligence and advanced analytics as tools for flagging high-risk noncompliance. An agency spokesperson separately highlighted the 2026 filing season as a success, noting average refunds came in 11% higher than the prior year.

The Response From Critics

Democratic lawmakers and tax policy researchers have read the same numbers very differently. Senator Elizabeth Warren of Massachusetts, a longtime advocate for stronger IRS enforcement funding, called the findings “a dream come true” for wealthy tax cheats and corporations that skirt the law. Analysts at the Center on Budget and Policy Priorities, a nonpartisan think tank, have argued that the math runs against the cuts on their own terms: “every dollar cut from IRS enforcement loses more than a dollar of revenue,” the group wrote, pointing to research showing IRS audits of high-income taxpayers generate an outsized return relative to their cost.

Outside modeling backs up that concern with larger numbers. The Yale Budget Lab has estimated that a reduction of roughly 18,000 IRS employees could cost the government somewhere between $159 billion and $1.6 trillion in lost revenue over a decade, depending on how much voluntary tax compliance erodes alongside the audit slowdown. A separate Budget Lab analysis concluded that the 2025 IRS staffing cuts, combined with a proposed further funding reduction, would save about $65.5 billion in direct costs through 2035 but trigger roughly $926 billion in gross revenue losses — a net addition to the federal deficit of nearly $598 billion over the same period.

What Comes Next

The financial pressure on the IRS shows no sign of easing. The agency’s discretionary budget fell from $12.2 billion in fiscal 2025 to $11.2 billion in fiscal 2026, and the Trump administration has proposed cutting it further to $9.8 billion in fiscal 2027 — a reduction Treasury Secretary Scott Bessent has defended publicly. The IRS’s Direct File program, a free-filing option launched in 2024 under the Biden administration, is also being wound down.

The current situation echoes an earlier period of IRS austerity. Congressional Republicans cut the agency’s budget by roughly 20% in inflation-adjusted terms between 2011 and 2020, a squeeze that CBPP analysts say left the IRS answering as few as 1 in 10 taxpayer phone calls in 2021 while audit rates for millionaires and the largest corporations collapsed. Congress later approved an $80 billion, decade-long funding boost for the IRS under the 2022 Inflation Reduction Act specifically to reverse that trend and rebuild enforcement capacity — funding that the current round of cuts has now substantially unwound.

For now, the IRS has more revenue agents than at almost any point in decades to work with fewer complex returns — CBPP notes the agency’s enforcement staff is smaller than it’s been since the 1950s, when the economy and the tax code were both far simpler. Whether the agency’s bet on AI and data analytics can make up the difference, as Bisignano argues, or whether the revenue losses compound as TIGTA warns, is likely to become clearer as more of the audits opened under the reduced staff work their way to completion over the next several years.