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direct file
After Lobbying Blitz, Trump IRS Formally Kills Direct File Program That Would've Saved Americans Billions
"It was never about efficiency, it's about Trump and his billionaire allies taking money from our pockets to make the tax system worse and line the pockets of big business elites in this predatory industry," said a spokesperson at Americans for Tax Fairness.
Aug 01, 2025
In a move backed by private tax-filing corporations, the administration of U.S. President Donald Trump officially announced the shut down of the government's free Direct File service this week.
For two years under the administration of former President Joe Biden, the IRS allowed taxpayers in some states to file their taxes online using public software under a pilot program.
A report published in March by the Economic Security Project found that:
At maturity in five years, Direct File would save the average user $160 in filing fees and hours of their time each year, which saves Americans a total of $11 billion annually between filing fees and time costs. By breaking down barriers to filing, Direct File would also deliver up to $12 billion each year in additional tax credits to low-income families currently missing out.
In January, the direct file system was rolled out to 30 million Americans across 25 states, to rave reviews. According to a memo circulated within the Internal Revenue Service (IRS), the program was "beloved by its users," with a 94% satisfaction rate among those who used it.
But according to IRS Chairman Billy Long, who spoke at a tax summit Monday, it will not be made available again in 2026.
"You've heard of direct file, that's gone," Long gloated. "Big beautiful Billy wiped that out."
"I don't care about Direct File. I care about direct audit," he added, referring to his efforts to make it easier for businesses and individuals under tax audits to get updates on their status.
The budget legislation that Trump signed into law last month did not formally end Direct File, as Long suggested. However, it did allocate $15 million to the Treasury Department for a task force to study public-private partnership alternatives to replace Direct File. "Big beautiful Billy" likely referred to Long himself, whose IRS formally ended the program.
Long's announcement was the culmination of a months-long scheme by private tax-filing corporations like Intuit and H&R Block, and Republicans in government to kill Direct File.
As early as December, following Trump's reelection victory, GOP congresspeople began calling for the program's demise. Twenty-nine of them, who'd accepted a combined $1.8 million in campaign donations from the tax prep industry over their careers, signed onto a letter written by Reps. Adrian Smith (R-Neb.) and Chuck Edwards (R-N.C.) calling on Trump to issue a "day-one executive order" killing the program.
Long, himself a former congressman from Missouri, raised eyebrows in January 2025, shortly after he was named as Trump's nominee to lead the IRS. According to The Lever, he received a curious $137,000 worth of donations that he then used to pay himself back for a $130,000 loan he'd made to his failed 2022 campaign for the Senate. Around a third of the money came from tax consultancy firms.
In March, following mass layoffs at the IRS by Elon Musk's Department of Government Efficiency (DOGE), staff working on the Direct File system were told to halt their work. Prior to that, Musk wrote on his social media app X that he had "deleted" 18F, the government agency working on the project.
Right after tax day in April, The Associated Press first reported that the administration was planning to end the program.
While consumer advocacy groups called the change a "big loss" for the public, the American Coalition for Taxpayer Rights, an astroturf group backed by tax-filing companies, thanked Smith, Edwards, and other GOP congresspeople "for their leadership" calling for the termination of the program.
The program was effectively dead for months, but Long's gleeful coroner's report this week made it official.
"Last year, Direct File saved taxpayers $5.6 million in tax preparation costs by allowing people to file their taxes for FREE," wrote Rep. Alexandria Ocasio-Cortez (D-N.Y.) Friday on X. "That's why tax preparation companies like... Intuit lobbied to get rid of it. Trump just gave them their wish."
Despite claims by GOP congresspeople that the program was "wasteful," it actually saved taxpayers much more money than it cost. According to the Economic Security Project's study, "For every dollar invested in the program, Direct File delivers $106 in benefits to American taxpayers, between savings on tax preparation fees and access to untapped tax credits."
"This move exposes what's really happening in Trump's administration," said David Kass, the executive director of Americans for Tax Fairness. "It was never about efficiency, it's about Trump and his billionaire allies taking money from our pockets to make the tax system worse and line the pockets of big business elites in this predatory industry."
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'Big Loss for the Public': Trump to End Free IRS Tax Filing Program
"Donald Trump and Elon Musk are going after Direct File because it stops giant tax prep companies from ripping taxpayers off for services that should be free."
Apr 16, 2025
On the heels of Tax Day in the United States, The Associated Press reported Wednesday that the Trump administration plans to end Direct File, a free electronic program for filing tax returns to the Internal Revenue Service, citing two unnamed sources familiar with the decision.
The news drew swift outrage, including from U.S. Sen. Elizabeth Warren (D-Mass.), who took aim at President Donald Trump and his adviser Elon Musk on the billionaire's social media platform X.
"Donald Trump and Elon Musk are going after Direct File because it stops giant tax prep companies from ripping taxpayers off for services that should be free," said Warren. "Americans want a free and easy way to file their taxes—Trump and Musk want to take that away."
According to the AP:
The program had been in limbo since the start of the Trump administration as Elon Musk and the Department of Government Efficiency have slashed their way through the federal government. Musk posted in February on his social media site, X, that he had "deleted" 18F, a government agency that worked on technology projects such as Direct File.
There was some hope that Musk, with his DOGE team of computer programmers, could take over Direct File and improve it. But the two people familiar with the decision to end Direct File said its future became clear when the IRS staff assigned to the program were told in mid-March to stop working on its development for the 2026 tax filing season.
Concerns about the future of the program—rolled out under the Biden administration—predated Musk's post. Dozens of congressional Republicans urged Trump to scrap the program in December, and the following month, the consumer advocacy group Public Citizen revealed that throughout those 29 lawmakers' careers, they had taken more than $1.8 million in campaign contributions from "Big Tax Prep and their proxies."
Public Citizen was among the organizations that responded to the reporting on Wednesday by blasting the Trump administration for "taking money out of the pockets of working people and giving it away to their Big Business and tech bro buddies."
Yale Law School professor Natasha Sarin—who was previously an official at the U.S. Treasury Department—wrote on social media that "this is terrible, terrible, terrible news for the American people and the tax system. The only winners are high-cost tax preparers."
"President Trump has said tax filing should be so simple that you could file on a postcard!" she noted. "The IRS had built something even better... It's devastating to watch so much good work undone."
While many Republicans in the U.S. House of Representatives pushed to kill Direct File, multiple Democrats from the chamber joined the chorus of condemnation in response to Wednesday's reporting.
"IRS Direct File gave people a simple and FREE way to file their taxes. Trump wants to get rid of it and allow tax preparation corporations to continue to rip taxpayers off with predatory fees," said Rep. Pramila Jayapal (D-Wash.). "So much for cutting costs for the American people."
Congressman Jerry Nadler (D-N.Y.) similarly said that "Trump's plan to kill Direct File is a gift to billion-dollar tax prep companies at the expense of American families. Once again, he's siding with profits over people."
Direct File, a prime example of making government more efficient, gave Americans an easy and free option to file their taxes. But Donald Trump cares more about his wealthy friends than working Americans so he wants to kill the program and make filing taxes harder. apnews.com/article/irs-...
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— Congressman Don Beyer (@beyer.house.gov) April 16, 2025 at 4:39 PM
Rohit Chopra, whose previous roles in government include directing the Consumer Financial Protection Bureau under former President Joe Biden, called out one company in particular, declaring the development "a big win for Intuit's profits on TurboTax, but a big loss for the public."
While Trump and Musk have framed their government-gutting work as an effort to make the federal bureaucracy more "efficient," their plans to destroy the program seem to accomplish the opposite. Before the news broke, Groundwork Collaborative senior fellow Kitty Richards said in a Tuesday statement that "Direct File is a crystal clear example of government efficiency at work."
"Taxpayers shouldn't have to pay exorbitant fees to predatory for-profit companies just to file their taxes," Richard asserteds. "As cost-of-living remains top of mind for so many Americans, the government should invest in and expand tools like Direct File that put money back into the pockets of working families."
"Unfortunately, the president is waging a war against the IRS—and hamstringing vital taxpayer services like Direct File in the process—so his wealthy donors can cheat on their taxes," she added. "The only people who benefit from a weakened IRS are billionaires like Donald Trump and Elon Musk."
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Why You Should Take Advantage of IRS Direct File This Tax Season
Widespread participation will help solidify the future of this important service amid the chaos in the federal government.
Apr 11, 2025
With Tax Day rapidly approaching, taxpayers who haven’t yet filed could have a great option available to them this year. Half the states in the nation now have access to a zero-cost tool created by the Internal Revenue Service called Direct File that allows people to file taxes online directly to the government using a question-based software.
Direct File is a much better option than paying for expensive corporate-owned software or hiring a private tax-prep company. The typical taxpayer ends up spending an average of eight hours each year completing their tax returns in addition to shelling out $160 a year to pay for a service that should be—and is now—free of charge.
Last year, Direct File software was made available through a pilot program to those with relatively simple tax situations living in Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, Texas, Tennessee, South Dakota, Washington, and Wyoming.
The user testimonials speak for themselves. “It was the fastest I’ve ever done my taxes,” said one user. “I wish everyone could do their taxes that easily,” said another.
This year, in addition to the 12 states from last year’s pilot program, all of which are participating again, Direct File has been expanded to include Alaska, Connecticut, Idaho, Illinois, Kansas, Maine, Maryland, New Jersey, New Mexico, North Carolina, Oregon, Pennsylvania, and Wisconsin.
Approximately 30 million people across the 25 participating states are eligible to use Direct File. And there are many reasons to welcome this new e-file tool created by the IRS.
Direct File was designed to make it as easy as possible for people to file taxes. In addition to being free of charge, the tool is mobile-friendly, available in both English and Spanish, and has live chat assistance from the IRS. What’s more, the tool now pre-populates some information that the IRS already has in its records to make the process even quicker and error-free, which is a huge improvement over its original version.
What’s more, Direct File is intended to help people claim credits like the Earned Income Tax Credit (EITC), which around one in five eligible filers don’t currently claim.
Research shows that when Direct File is fully scaled up, Americans could collectively save up to $11 billion in filing costs alone, while low and moderate-income families could recoup $12 billion in tax credits like the EITC and Child Tax Credit that they’re currently missing out on. That money could come in handy for families struggling to make ends meet in these times of rising costs.
Predictably, Direct File is overwhelmingly popular with the American public. More than 90% of people who used Direct File last year said that the tool is “Excellent” or “Above average.”
The user testimonials speak for themselves. “It was the fastest I’ve ever done my taxes,” said one user. “I wish everyone could do their taxes that easily,” said another.
It’s not just popular with those who’ve used it. Direct File has been cheered by more than 140 members of Congress; 16 attorneys general; 134 leading experts on the U.S. tax system; and more than 250 national, state, and local organizations representing all 50 states, the District of Columbia, and Puerto Rico.
During his confirmation hearing, Treasury Secretary Scott Bessent said he would commit to keeping Direct File in 2025. However, amid the current chaos happening in the federal government, its future in 2026 and beyond is less certain. Big tax prep corporations have been handing out cash to opponents of Direct File in Congress in the hopes of gutting the program.
For Direct File to remain an option in future years, it’s critical that taxpayers take advantage of the tool right now. Widespread participation will help solidify the future of this important service.
So if you haven’t filed your taxes yet, go to directfile.irs.gov to see if you’re eligible.
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Exposed: Republicans Trying to Kill Free 'Direct File' Program Funded by For-Profit Tax Prep Industry
"Direct File should be expanded, kept permanent, and be held up as a model for government programs enacted to help average Americans—not corporate America."
Jan 30, 2025
The popular, free Direct File program introduced by the Internal Revenue Service in 2024 is being expanded this tax season despite the objections of dozens of congressional Republicans—but an analysis released Thursday reveals why GOP lawmakers are so intent on ensuring the Trump administration ultimately eliminates the program and forces taxpayers to rely on services from private tax filing corporations.
The 29 Republicans who sent a letter to President Donald Trump in December asking him to end Direct File with a "day-one executive order" have received more than $1.8 million in campaign contributions over the course of their careers from "Big Tax Prep and their proxies," said the consumer advocacy watchdog Public Citizen.
The companies that have donated to the lawmakers include Intuit and H&R Block, as well as the American Coalition for Taxpayer Rights—a group of lobbying firms that work on behalf of the tax filing industry.
With Direct File offered to taxpayers in 25 new states starting this week—after being available in 12 states last year—Public Citizen revealed that in 2024, the industry and its lobbying firms contributed more than $700,000 to the Republican lawmakers who wrote the letter.
Lobbyists and lobbying firms contributed most of the money detailed in the report—more than $1.5 million of the total. The remaining money was donated by political action committees (PACs) for H&R Block, Intuit, and the lobbying firms.
"The new administration must stand up to greedy Big Tax Prep giants and their army of hired lobbyists by continuing to build on the popular Direct File program beyond this tax season."
U.S. Rep. Adrian Smith (R-Neb.), who spearheaded the letter claiming Direct File poses a "threat to taxpayers' freedom from government overreach," received the second-most campaign donations of any of the signatories.
The tax filing industry and lobbying firms have given Smith $224,350 over the course of his career, second only to Rep. Darin LaHood (R-Ill.), who received $242,256.
Both also received more money from tax filing interests in 2024 than any other lawmaker.
Public Citizen noted that 12 of the signatories represent five of the states with Direct File pilot programs in place last year.
"According to data from the Economic Security Project, a combined 15.2 million taxpayers in these states were eligible for the program in the first year," reads the report. "Had they all used the program, these taxpayers would have saved more than $2.4 billion in filing fees."
With the 12 lawmakers having taken more than $640,000 from "the Direct File opposition and their proxies throughout their career... these Republicans are putting the interests of their donors ahead of their constituents," said Public Citizen.
"Direct File is a commonsense government program that was overwhelmingly well-liked by the filers who used it during its 2024 pilot," said Susan Harley, managing director for Public Citizen's Congress Watch division. "Eligible filers in 25 states now have an option to directly e-file their taxes for free to the IRS. The new administration must stand up to greedy Big Tax Prep giants and their army of hired lobbyists by continuing to build on the popular Direct File program beyond this tax season."
According to the report, donations from the tax filing industry have particularly flowed toward Republicans who sit on the House Ways and Means Committee, which has jurisdiction over the IRS and taxation.
"Together, these signers have received more than $1.3 million over their careers including more than $500,000 during the 2024 cycle," said Public Citizen. "These members account for nearly two-thirds of the Republican majority on the committee."
People in 25 states will be able to save hundreds of dollars by filing their taxes without paying a private company or giving a cut of their refund to Intuit or H&R Block, noted Public Citizen.
"These savings can provide some financial relief at a time when budgets are stretched thin," said the group. "Direct File should be expanded, kept permanent, and be held up as a model for government programs enacted to help average Americans—not corporate America."
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10 Wins Against Inequality to Celebrate in 2024
Champions in the fight against inequality face formidable challenges in 2025. But by working together at all levels—from the shop floor to state houses to the halls of Congress—we can still find ways to build power.
Dec 31, 2024
In dark times like these, shining a light on successful efforts to reverse our country’s extreme inequality is more important than ever. As we looked back on 2024, we actually found plenty to celebrate. Here are 10 inspiring wins that deserve more attention.
1. Labor Breakthrough in the South
Volkswagen workers in Chattanooga, Tennessee voted overwhelmingly in April to join the United Auto Workers (UAW), a landmark win for labor organizing in the South. The region has suffered deeply because of its low-road, anti-union economic model. Seven out of ten states with the highest levels of poverty are in the South, according to the Economic Policy Institute.
Whatever happens on the national political stage over the next four years, local communities can still win important fights for a more just society.
Another UAW election, at a Mercedes-Benz facility in Vance, Alabama, where management was more aggressively anti-union, went the other way in May. But the union has vowed to continue organizing in the region. “This is a David and Goliath fight,” UAW President Shawn Fain said after the Mercedes loss. “Sometimes Goliath wins a battle. But David wins the war.”
2. Union Momentum at Amazon
Organizing workers at Amazon—now the nation’s second largest private employer—has been a white whale of the labor movement for years. Aside from a breakthrough union election win in Staten Island, puncturing the e-commerce giant’s anti-labor strategy has been challenging. That is, until this year, when the Teamsters made sizable gains.
The National Labor Relations Board ruled this summer that Amazon should be considered a joint employer of the delivery drivers it subcontracts, opening up that class of workers to organize. And organize they did—according to the Teamsters, over 5,000 drivers have joined the union at nine Amazon locations. Warehouse workers have made advances as well. In California, Amazon employees in San Francisco and at the company’s air hub in San Bernardino are now demanding union recognition.
3. Grocery Mega-Merger Blocked
For the past two years, the United Food and Commercial Workers union has led a coalition of more than 100 organizations against the proposed merger of grocery giants Kroger and Albertsons. The union predicted the mega-merger would result in “lost jobs, closed stores, food deserts, and higher prices.”
By contrast, corporate executives stood to make a killing. At Albertsons alone, the proposed merger agreement would’ve delivered as much as $146 million to the firm’s top 10 officials.
On December 10, one federal court judge and another in Washington state sided with the Federal Trade Commission and issued temporary injunctions against the deal. The following day, Albertsons threw in the towel on what would’ve been the biggest grocery store merger in U.S. history. “This is the first time the FTC has ever sought to block a merger not just because it’s gonna be bad for consumers, but also for workers,” FTC chair Lina Khan said shortly after the decision.
4. Ballot Wins on Taxes, Wages, Paid Leave
Despite the red wave on November 5, voters in several states passed ballot initiatives to adopt inequality-fighting policies that most Republican politicians oppose.
In the red states of Nebraska, Missouri, and Alaska, voters approved guaranteed paid leave, while Missouri and Alaska also passed state minimum wage hikes.
Washington state voters rejected a hedge fund-financed ballot proposal to repeal the state’s path-breaking capital gains tax on the rich. They also beat back an effort to gut a state-operated long-term care insurance program. In Illinois, voters adopted a nonbinding measure expressing support for an extra 3% tax on income of over $1 million.
5. TurboTax Got Turbo-Trounced
In 2024, for the first time ever, over 100,000 Americans filed their tax returns digitally directly to the IRS. The agency’s Direct File system went live in 12 pilot states, breaking the dominance that for-profit tax preparation companies have enjoyed for years.
“This is an important fight to ensure greedy tax prep companies don’t continue to rake in money from filers who are simply doing their civic duty,” wrote Public Citizen’s Susan Harley for Inequality.org.
Direct file also advances racial justice. Color of Change and the Groundwork Collaborative exposed how Intuit’s TurboTax and H&R Block target Black and low-income communities for costly and unnecessary services.
Unfortunately, this fight is not over. House Republicans are urging President-elect Donald Trump to kill the IRS’s free direct file service on day one of his second administration.
6. Biden’s Worker Protection Spree
President Joe Biden adopted a range of pathbreaking executive actions to protect U.S. workers—including safeguards against toiling in extreme heat, broader overtime pay coverage, and new measures protecting organizing rights. He also authorized rules to crack down on bosses who misclassify employees as independent contractors or force them to sign noncompete agreements.
The beauty of executive actions: no need for Congressional approval. The downside: The next president has the power to roll them back.
Will that happen under Trump, a self-declared but dubious champion of the working class? We shall see. In the meantime, the National Employment Law Project and several other organizations have put together a guide on how state policymakers could enact similar standards at the subfederal level.
7. Grounding Private Jets
Did you know that private jets pollute 10 to 20 times more per passenger than commercial airplanes? And the typical private jet owner, with a net worth of nearly $200 million, actually pays a far smaller share of air safety fees than commercial coach passengers, according to Institute for Policy Studies research.
In 2024, Stop Private Jet Expansion, a 100-organization coalition, won two major victories in their campaign to block the expansion of New England’s largest private jet airport, Hanscom Field outside Boston. Massachusetts state rejected the developer’s environmental impact submission, demanding supplemental information. As part of a comprehensive climate bill, the state legislature also updated the charter of Massport, the agency that will decide the future of the airport, to require them to consider carbon emissions and climate change in their decision-making.
8. Arming Millions of Davids Against Wall Street Goliaths
Elon Musk has called for “deleting” the Consumer Financial Protection Bureau. What’s his problem with this federal agency? For Musk and his finance bro buddies, it appears the CFPB has been overly effective in helping ordinary Americans stand up to big money interests.
Recently the agency announced it’s forcing shady “credit repair” companies to return $1.8 billion in illegal junk fees to 4.3 million Americans. The agency also just issued new limits on overdraft fees that will save consumers billions more. During its nearly 14-year history, the CFPB has won nearly $21 billion in compensation for victims of fraud, racial discrimination in lending, and other financial abuse.
“Weakening the CFPB, slowing its work, or steering it to favor industry over the public interest,” explains the advocacy group Americans for Financial Reform, “would give bad actors a green light to do their worst and further deepen this country’s racial wealth gap.”
9. Public Money for the Public Good
For four decades, procurement rules made it difficult for local and state policymakers to ensure that federally funded projects create good jobs. With megabillions in new public investment about to flow into infrastructure and clean energy projects, a labor-community alliance known as the Local Opportunities Coalition led the charge to get rid of these anti-worker vestiges of the conservative Reagan era.
Finally, in 2024, the Biden administration got the job done. Now state and local governments can give companies a leg up in bidding competitions if they commit to creating specific numbers of jobs with minimum levels of pay and benefits. They can also require hiring preferences for local workers and disadvantaged communities, ban the use of contract funds for union-busting, and prohibit employers from misclassifying workers as “independent contractors” to skirt labor laws.
10. Communities Standing up for Quality Care
Whatever happens on the national political stage over the next four years, local communities can still win important fights for a more just society.
One particularly inspiring example from 2024: the battles to protect county-owned nursing homes in rural Wisconsin against privatization. Study after study has shown that private equity-owned facilities have lower-quality care and higher mortality rates. And yet many Republican lawmakers are backing for-profit corporations’ efforts to take over this critical service.
As veteran community organizer George Goehl has reported, Wisconsin seniors put up a strong fight this year. They succeeded in ousting pro-privatization members of at least three county boards and are continuing to organize to protect their healthcare from corporate greed.
Champions in the fight against inequality face formidable challenges. But by working together at all levels—from the shop floor to state houses to the halls of Congress—we can still find ways to build power and move our country towards a just economy that works for everyone.
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To Help Taxpayers, Congress Should Fund the IRS and Save Direct File
The arguments against an improved IRS are motivated by private corporations worried about their profit margins and by anti-government activists seeking to undermine the public’s trust in the agency.
Dec 17, 2024
As Congress negotiates a bill for federal funding during the lame-duck session, lawmakers would be wise to remember that stripping funds from the Internal Revenue Service costs more than it saves. On the table in the appropriations bill is a $20 billion recission of funds to the nation’s tax administration. While this may look like a spending cut, it will increase deficits by $46 billion due to a drop in the agency’s capacity to enforce taxes on wealthy individuals owed under existing federal law.
At the same time, congressional Republicans are calling on the incoming Trump administration to end the popular program that allows taxpayers to file their returns for free directly through the IRS. This will ultimately lead to more costs for taxpayers as they pay private services such as Intuit or H&R Block to carry out paperwork that they are required by law to file each year.
Regular taxpayers benefit from a competent and well-funded IRS. Most people do their best to pay their taxes accurately and on time, and slashes to funding that leave the agency understaffed and underequipped only create headaches for compliant taxpayers. Until recently, the IRS was not given the funding and capacity to pursue the high-income taxpayers who have the most complex returns but who also account for a hugely disproportionate share of the tax avoidance, which unfairly shifted the agency’s scrutiny to everyone else.
The arguments against an improved IRS are motivated by private corporations worried about their profit margins and by anti-government activists seeking to undermine the public’s trust in the agency.
Upcoming Appropriations Bill Will Cut Billions from the Agency if Congress Does Not Act
Congress must appropriate funding to each federal agency every year, even when that funding has already been authorized through prior legislation. When Congress cannot come to an agreement on funding levels, they frequently pass “continuing resolutions,” which generally keep funding at its current level to prevent a government shutdown.
To help rebuild the agency after a decade of cuts in its annual appropriations, Congress provided an additional $80 billion in the Inflation Reduction Act to supplement its annual appropriations for 10 years. Most of this money is for tax enforcement targeting profitable corporations and the wealthy. That was unpopular among congressional Republicans, who sought to eliminate the additional funding during 2023’s debt ceiling negotiations.
Filing tax returns is required by federal law, and taxpayers should not need to pay money to a private company to hand over their private information to complete the service for them.
U.S. President Joe Biden signed the IRA into law but shortly after compromised with then-Speaker Kevin McCarthy (R-Calif.) and agreed to rescind $20 billion in funds over the upcoming two years as part of a deal to prevent the Republican-controlled House from driving the United States to default on its debts. The provision to cut those funds was included in the next year’s spending bill, negotiated between Republican and Democratic lawmakers. But rather than spreading the cuts over two years, all $20 billion was included in the first year—fiscal year 2024.
Now, Congress is likely to pass a continuing resolution that would extend funding levels from 2024. Without an agreement between lawmakers, this would include an additional $20 billion funding cut to the IRS that was not included in the initial Biden and McCarthy agreement.
This is bad for the federal deficit and bad for average taxpayers.
Congressional Republicans Also Want to Make it More Expensive to File Tax Returns
This year, for the first time ever, many taxpayers were able to file their taxes for free directly through the IRS as part of the Direct File pilot program. In past years, taxpayers were forced to either file by hand themselves or to use paid tax preparers like TurboTax, H&R Block, or Jackson Hewitt.
Taxpayers who used the Direct File program (which was only available in 12 states during its first year) were pleased with the results. The pilot program exceeded its goal for the number of users, and 90% of users rated their experience with the program as excellent or above average.
State governments were excited about the opportunity as well. Thirteen additional states are cooperating with the IRS to expand Direct File to include their state income taxes.
It makes sense. Filing tax returns is required by federal law, and taxpayers should not need to pay money to a private company to hand over their private information to complete the service for them.
But that is exactly what many congressional Republicans are now asking the incoming Trump administration to require of honest taxpayers. Twenty-nine Republican lawmakers signed a letter to the incoming administration asking them to end the popular program on “day one.”
Previously, the IRS attempted to persuade private companies to offer free filing services for taxpayers with relatively simple returns through a program called the Free File Alliance, and the companies participated for some time. But this arrangement did not always go as planned.
Some companies hid the free services from search engine results, and in TurboTax’s case, their parent company Intuit was eventually sued for deceptively leading taxpayers into paid services rather than the free services. Intuit eventually settled for $141 million.
Decade of Austerity Diminished the IRS’ Ability to Serve its Mission
Between 2010 and 2021, the agency’s budget was cut by a fifth and the number of revenue agents dropped by 35%. Meanwhile, the amount of tax returns filed grew by 13%, and the amount of tax returns filed by individuals making more than $500,000 grew by 70% from 2011 to 2019. As a result, the audit rate on these wealthy individuals dropped by more than 76%.
Although the IRS budget cuts were part of a larger campaign of government austerity following the Great Recession, the cuts put the federal budget in a worse position. The gap between the taxes that people legally owed and what they actually paid grew as high as $600 billion annually by 2021, more than half of that due to unpaid taxes from the top 5% of income earners.
Every hour spent auditing the returns of the most well-off families found $13,000 in unpaid taxes.
It wasn’t just the country’s fiscal situation that suffered from the assault on the IRS. Regular taxpayers trying to file accurate and timely tax returns found themselves dealing with an agency unable to meet the needs of the public. In 2022, The Washington Post reported on outdated and understaffed IRS processing facilities. IRS employees were in many cases using 70s-era technology and business processes. The Austin, Texas facility was so strained that its cafeteria became an impromptu document storage room.
The result was that the agency was failing. It was simply unable to answer calls, respond to letters, and issue swift tax refunds.
Recent Improvements to the IRS are Delivering Immediate Results for Taxpayers
The Inflation Reduction Act passed in 2022 reversed the decades of funding cuts to the IRS. The bill allocated $80 billion (now reduced to $60 billion and potentially even further) in funding to the agency to return its workforce to adequate levels, modernize its business systems and technology, and increase tax enforcement on big businesses and people making more than $400,000 a year.
The results were immediate. In prior years, the IRS had satisfactorily answered just 15% of phone calls. In 2023—the first tax year with the new funding—they answered 85%. That’s still too low by most standards, but a remarkable improvement. The agency also opened or re-opened 54 in-person centers to assist taxpayers across the country.
Positive Results for the Federal Budget, Too
The improvements to the IRS have delivered progress toward closing the tax gap as well. In 2023, the agency released a comprehensive strategic operating plan. In addition to improving taxpayer services, the document laid out the agency’s strategy for increasing audit rates on high-income individuals and complex business structures. While it may only take one auditor a few hours to review the tax return of a family claiming the Child Tax Credit, dissecting the tax return of a large S-corporation could be a years-long project for an entire team of auditors. So, the first step was to hire highly-skilled staffers and provide them with the best training and technology available.
This year, the IRS announced that it had collected $1.3 billion in unpaid taxes from millionaire households. In many cases, these were individuals simply not even bothering to file their tax returns. The agency had also begun leveraging modern technology like artificial intelligence to identify the most suspicious returns from large, complex partnerships.
If these funding cuts are passed, there will be thousands of fewer audits of wealthy individuals and large corporations. The latest estimates from the Congressional Budget Office show that an additional $20 billion recission in IRS funds will result in $66 billion in lost revenue, creating a $46 billion rise in deficits. That estimate tracks with a recent Government Accountability Office report that found every hour spent auditing the returns of the most well-off families found $13,000 in unpaid taxes. Cutting this funding is costly, not just for the honest taxpayers who will spend more hours waiting on the phone, but with direct increases in the federal deficit.
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Doing For-Profit Tax Industry's Bidding, GOP Calls On Trump to Cancel Direct File Program
"This is the most efficient way and cost-efficient way for millions of people to pay their taxes," said one advocate.
Dec 11, 2024
Responding to the "absurd" news that more than two dozen U.S. House Republicans are calling on President-elect Donald Trump to end the Internal Revenue Service's Direct File program, Rep. Gerry Connolly came to one conclusion: "Republicans want to make your lives more difficult."
The Virginia Democrat wasn't alone in denouncing a letter penned by Reps. Adrian Smith (R-Neb.) and Chuck Edwards (R-N.C.) and signed by at least 27 other Republicans who called on Trump to sign a "day-one executive order" to end the free tax-filing program that allowed roughly 140,000 taxpayers to save an estimated $5.6 million in filing costs this year.
Direct File, which was introduced as a pilot program in 12 states in the last tax filing season and is set to be expanded to 24 states and more than 30 million eligible taxpayers this year, is "a free, easy way for people to file their taxes directly online with IRS," said Sen. Elizabeth Warren (D-Mass.).
The software allows taxpayers to keep their entire tax refund "rather than paying $150 to a sleazy tax prep company," said the senator, adding that Republicans evidently want Americans "to keep wasting money on TurboTax," the popular tax filing program run by Intuit, which reported a net income of $2 billion in 2023 and spent $3.5 million on federal lobbying the previous year. The private tax filing industry has spent decades lobbying to ensure a system like Direct File wouldn't be made available to Americans.
In the letter, the Republicans claim the Direct File system is "unauthorized and wasteful" and that "the program's creation and ongoing expansion pose a threat to taxpayers' freedom from government overreach."
The Republican lawmakers also sent the letter to billionaire businessmen Elon Musk and Vivek Ramaswamy, Trump's nominees to lead the proposed Department of Government Efficiency (DOGE).
In the letter they claim to want to protect "hardworking Americans" from the "overreach" of the IRS, but as In the Public Interest founder and executive director Donald Cohen told Common Dreams on Wednesday, the Direct File program is "incredibly popular" with those who have used it.
"This is the most efficient way and cost-efficient way for millions of people to pay their taxes," Cohen said. "So what the Republicans want to do is make it more costly, more complicated, and more profitable for the big tax software vendors."
Cohen also questioned how Smith and Edwards could argue, as they do in the letter, that Direct File is a "clear conflict of interest."
"It is in all of our interests for the federal government to... collect taxes in the most efficient and cheapest way," he told Common Dreams.
On the contrary, he said, private tax software companies like Intuit and H&R Block are incentivized to fight against Direct File, which keeps them from collecting about $1 billion in filing fees as well as users' data.
At the Center on Budget and Policy Priorities, vice president of tax policy Chuck Marr said Republicans who signed Wednesday's letter are essentially pushing for "a tax on paying taxes."
Ernie Tedeschi, director of economics at the Yale Budget Lab and the former chief economist of the White House Council of Economic Advisers, argued that Direct File "does what policymakers should be in favor of: It makes a core government function more efficient and user-friendly, in a way that's accessible for everyone."
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