Tax revenue collected by the IRS set to drop by over 10%

The US government could collect significantly less in tax revenue this year, with officials at the Internal Revenue Service (IRS) and the Treasury Department projecting a drop of more than 10% compared to 2024. According to a report from The Washington Post, the decline will exceed $500 billion by the April 15 tax filing deadline.

The IRS reportedly collected $5.1 trillion last year, meaning the shortfall could amount to nearly the equivalent of the US Department of Defense’s $825 billion budget for fiscal year 2024. The revenue downtick, as some economists say, is a consequence of a change in taxpayer behavior and job dismissals at the IRS under President Donald Trump’s administration.

IRS cuts enforcement causes staff shortcomings

The Trump administration, mandating Elon Musk’s founded Department of Government Efficiency (DOGE), has supposedly dismissed more than 11,000 employees so far and will likely fire nearly 20,000 workers in total, according to anonymous sources familiar with the matter. 

These cuts have affected taxpayer services and enforcement divisions, nerfing the agency’s ability to process returns and conduct audits. As a result, the IRS has reportedly dropped investigations into high-value corporations and wealthy individuals due to resource constraints. 

Since Trump took office, the agency has seen two senior officers resign, with IRS compliance chief Heather Maloy stepping down on March 21.

According to several IRS officials, these staffing reductions have forced the agency to focus on “essential functions,” delaying or outright halting some enforcement activities. Economists warn that these cuts could negatively affect the efficiency of the tax system, especially now, when the US is at the height of filing season.

Fewer tax filings and increased non-compliance

IRS data shows a 1.7% decrease in the number of tax returns filed compared to the same point in the 2024 season. This decline may be smaller than the projected revenue shortfall, but internal IRS calculations say it is a wind before the real storm; the downtick will continue in the coming months.

The agency’s revenue projections factor in scheduled payments from already filed returns, outstanding balances, and annual noncompliance rates. 

Individual income taxes are by far the largest source of revenue for the US government. As of fiscal year 2025, Americans have paid $959 billion in income taxes, making up 51% of total federal revenue, as reported by the Treasury Department. 

Per the taxpayer compliance office, citing discussions on social media, a growing number of taxpayers have openly declared their intention to either not pay taxes or aggressively claim deductions they may not qualify for, believing the risk of audit is low. 

After The Washington Post report was published, a Treasury Department spokesperson coined the claims as “sensational and baseless,” stating that the sources should “be dismissed out of hand.” 

Trump’s plan to cover revenue deficit is tariffs

The decline in tax revenue comes as Trump’s administration pursues trade policies meant to reap revenue from the US’s allies, Europe, and Asia. President Trump has proposed eliminating federal income taxes for individuals earning under $150,000, provided the government first balances the budget.

Howard Lutnick, the US Secretary of Commerce and a Trump ally, told Fox News earlier this month that the administration plans to eliminate wasteful government spending through DOGE, cutting $1 trillion from what the administration considers waste, fraud, and abuse. In addition to spending cuts, Lutnick said tariffs will add more revenue. 

“You take a trillion out of the waste, fraud, and abuse of our systems, and then you have the tariffs, and then you produce: drill, baby, drill,” the government official surmised.

A 2024 report from the Washington-based Tax Foundation showed that in 2021, personal income taxes generated $2.2 trillion in federal revenue, while tariffs accounted for just $80 billion. To compensate for lost income tax revenue, tariffs would need to be raised by over 60%, which spells bad times for trade and consumer prices.

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